that is a question which the lending company should answer before doing indiscriminate lending.
If already transferred to own account what can these Nbfc do
They see it as karvy’s share
But now time has come to look for entire LAS books in India
These people like IIFL, Karvy making India a bad place in eyes of global investors
These are not physical shares over which it is physically written who owns the share. In digital form, the person in whose account these shares are posted, the shares belong to them. How can one verify whether you own a share or not??
There can be cases where I bought the shares long time ago, so i can not provide a money trail. There can be events in which shares are transferred, say, fraudulently to one person and then sold to another (legally)… Then who is liable?? If, such things can be done, even shares in your dp are not safe and can be transferred anytime… Who knows what frauds has taken place at what stage??
The karvy issue happened due to unauthorised use of POA… even in physical world, if you give someone POA, that person can use it to transfer properties illegally… Problem is the clients who don’t monitor their account for unauthorised debits or keep the shares in pool accounts for extended period of time.
Karvy defaulted… apparantly defrauded the clients. Here clients as well as financial institutions both are innocent. Clients by proper KYC/MONITORING COULD HAVE AVOIDED DEFAULTS…
So in case clients don’t check messages regularly sent by DPs or haven’t updated KYCs with proper mobile numbers, despite numerous ad campaigns by exchange and SEBI, Is it not the clients who are at fault???
I believe the amount is not large as to affect the fortunes of the company, but such orders are definitely in bad taste.
SEBI could have ordered freezing of shares while courts or liquidators did their work…
After this order, if upheld in court, even DPs are not safe… TRUST IN DPs will be LOST… Issue is bigger then LAS / 1000 Cr client securites…
Sir , Why NSDL approved the pledging of the shares if it is illegal? Why SEBI or Government should not be held as responsible? What is the fault of private financiers here?
Why they will doubt if it is coming from Karvy’s own account and pledging confirmed by NSDL?
Not such when this happened, but before June 2019 pledging of client securities to other NBFCs was legal. In fact, many brokerage firms until then used this route to do their margin funding business.
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My 2 cents, its good this scam was unearthed at 2800 crore instead of 28000 crore.
I am also biased in favor of the clients instead of corporate who would stand to lose basis SEBI/NSDL action. But also not sure if there was a way the lending corporate could have figured out the shares of the clients and not Karvy itself.
The reason for bias is we needs more folks to participle in the stock market, total participation is only 2 cr from population of 125 cr. I’ll quote a line from Batman here ‘Sometimes you need your faith to be rewarded’
Juxapose this all those folks who have lost their saving against unfinished houses/apartment and the builders have absconded and they keep repaying the interested. I am digress a bit.
Overall,
Its would be a good chance to further tighten the compliance/laws to avoid such situation.
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Although the karvy issue may not be ( though I am not sure ) material loss, but the surprising thing is Bajaj finance leadership is known to be focused on risk management. So whether such thing could have been avoided ? Doesnt it reinforce the belief that corporate loans are riskier than consumer loans and bit solace is that it has more consumer loans ( pls correct me if I am wrong ) . Also heard that its focusing more on housing . Are housing loans easily recoverable ? Theoretically they should be due to mortgage
Another thing that i am wondering is why dont they convert themselves into a bank ? One can understand that they might not want to do that as then they would have to bring down promoter holding , but then as a bank, they would have access to CASA and then can leverage on the same which already they have been doing so superbly without it . Else how would they manage to continuously raise funds at lower rates in future . Then woudnt the performance be even more better ?
Disclosure- Invested
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In my opinion, Bajaj Finance (or any NBFC) as a lender neither has access to the transaction details of Karvy (or any DP/borrower for that matter) nor they are supposed to check that.
In case of LAS, what a lender broadly checks is that the amount of loan matches with the financial profile of the client, his repaying capacity, CIBIL records, the quality of shares offered for pledging and appropriate hair cut on those shares.
To comply with AML (anti money laundering) guidelines, a lender is suppose to ensure that the securities are being pledged from borrower’s own account and funds are transferred to borrowers bank account only. Also at the time of closure of the loan, the funds are taken from the account in which loan was disbursed.
Bajaj Finance has followed processes as laid by Regulatory Authorities (SEBI) and Depository Participants (NSDL & CDSL) and is at no fault at all.
Karvy misused the POA given to it by the clients and transferred shares which, as a custodian, it was suppose to keep in client’s account. A DP cannot retain/transfer shares from client’s account unless there is a debit balance in client’s account. Even in case of debit, the process to recover due amount is altogether different. In no scenario, a DP can pledge shares of client without taking written consent from the client. So this is a clear breach on part of Karvy.
There is a bigger lapse on the part of clients. There are few things that a client must ensure while opening an account with broker/DP which are as follows.
- While opening an account, client must ensure that all the details filled in account opening form including address, mobile number etc are correct and belongs to him only.
- He should go through the terms & conditions given in POA and object in case there is any clause which isn’t looking good on the face of it. Like POA shouldn’t give right to Broker/DP to retain funds/shares in case there is not debit / outstanding in client’s account.
- NSE/BSE sends SMS for the amount of trade done by the client on any given day. He should make sure that he is receiving such messages and the amount of trade as given in such message matches with whatever trading he has done during that day.
- In the same manner, Depositories (NSDL & CDSL) sends message wherever any share is getting transferred from client’s account. If a client receives a message for debit of share from his account WHICH HE HAS NOT SOLD the previous day, this is a red flag and requires further checking. He can check with his DP and ask for the reason for debiting those shares.
- LAST BUT THE MOST IMPORTANT STEP - Depositories (NSDL & CDSL) provides an interface (Speed-E, IDeAS in case of NSDL and Easi & Easiest by CDSL) which is for clients and free of cost, wherein by registering themselves, clients can check their holding and reconcile it with what his Depository Participant (ICICI, Zerodha, Karvy, HDFC or any other DP) is showing in client’s account. Client should reconcile statement of Depository and DP at least once every month.
For details on how to register with Depository’s client interface, the process is simple and self explanatory. People having their DP account with NSDL can register themselves at www.eservices.nsdl.com and for CDSL clients www.web.cdslindia.com/myeasi/home/login. Read about the two services provided by depositories and choose the one that suits your requirement.
Disc – No investments in BFL.
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The present situation is an interesting one and both sides (retail investors and lenders) have a claim on the shares. How it is resolved in the court of law / SAT will determine how the LAS business will evolve in the future.
The fact that Karvy in this case was clearly wrong is unequivocally true. But who legally owns the shares, is what has to be determined. Let’s wait for the SAT judgement before jumping in with our own assumptions and beliefs.
And in the meantime, as @inxs_22in has suggested, better get our own holdings safe by following the steps.
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I am just trying to calculate the worst case scenario. lets assume that if bajaj finance looses all of this 312 crores. At todays closing price the price to book is 12.27 times on consolidated bases. So a market cap loss of 312*12.27=3828 crores. Which is 1.6% of todays market cap of 240000 crores. So basically a drop of 63 rupees at present rate. The stock is already down more than that. So the conclusion is this entire karvy issue and discussion is good only for understanding LAS lending however it does not affect the business of the company or the value of shareholders significantly. In fact these overreactions by market should be used as an opportunity if some one looking for an entry.
Disclosure: Bajaj finance is my largest holding.
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Bajaj Finance should target retail LAS and avoid corporate LAS. From personal experience I know that the credit standards of BFL are much lower than banks. Ease of doing business is why customers approach BFL in the first place.
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Balance transfer of an existing home loan to Bajaj Finance was done in 5 days. Did not go anywhere and the DD was delivered at home. Whereas it took 4 months to transfer to SBI repo linked loan, with additional paper work and affidavits, visiting branch at least 2-3 times.
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what’s the interest rate? SBI would be much lower then BFL? wont it worth to spend some time in banks on a high ticket loans of 50L +?
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That’s what I did. Bajaj Finance recently reduced my rate by 10bps to 8.95%. When I asked foreclosure letter, they were reluctant to provide and offered me 8.6%. I denied. SBI offered 8.5%, with downward revision starting Jan for the last repo cut. I had applied in August, disbursed in Nov.
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With regards to LAS, in extending margins to clients, Bajaj takes the 8% as instructed by SEBI and takes an additional 12% limit.
Disclosure: Not invested
What’s the breakup between retail and corporate loans of Bajaj finance?
Friends i am sharing my personal experience as customer with Bajaj finance so far. Pls note i maybe wrong in my assessment.
Few years back i was amazed with seing Bajaj finance people in Croma store and went ahead to take the zero percent emi loan. I was stunned that how can a company give long term loan on zero percent and post that i started noticing their people everywhere. Process was quick and easy with hardly any paperwork. Till date I feel that was my biggest mistake. Because after paying back all amount years back, their employees keep haunting/calling multiple times a day, say lies that i requested some card etc etc. Worst experience it has been since then. The callers are thick skin and keep lying and unlike the ones from banks, they sound low class and not bothered about how customer is feeling by constant calling. I can only imagine how their recovery people would be if sales are like this. Probably that’s why this stock rose so much so far.
Also, forgot to mention, they had sent me an emi card even without asking when i had taken loan. Now all dues paid long back, i fear their stupid employees can do anything for sales and send some card again. I am planning to visit their office and give final ultimatum to the manager that I do not want to do any business with them.
This is a company for the low class, as someone rightly said, who do not have access to credit cards etc. I have decided never again to do any business with them. There will be many like me and as people grow up the pyramid, they will surely shun such companies and remember the experience.
None of my experience would cause any short or medium term change to an investment outlook but of course it gives me clear signal that for long term this is not a company for me to invest.
Pls not these are only my views
Disc: invested in Bajaj Finserv because of insurance business. plan to convert to HDFC life at an opportune moment
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well it is just your perception or may be an exception, nothing else.If you do not have DND activated, rest assured all BFSI companies will make your life hell.So BFIN is not the only culprit.
Of late, Airtel DTH is calling me 4 times daily, that does not mean Airtel as a stock is very bad.
I too had taken taken their no cost EMI for buying my first A/C almost 8 years back; but I did not get any continuous calls as you have been mentioning or faced any inconvenience from them later on.And I have been their repeat customer as well.
The stock has proven itself for the last 10 years, so let us put this debate to rest what is long term
Besides, there is a famous saying: Love your family, not your stocks." 
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