Season of misery for India's Financial sector

A company which was started by 5 men who were working CA firm, decided to quit their job and start their own broking firm. when all the brokerage houses majority were operating out of Mumbai, they thought of starting in Hyderabad. 

A dream that we should have our own broking firm in the top iconic brokerage houses of India was questioned for malpractices. I hope you know which broking firm I'm talking about, Karvy Stock Broking.

In the stock market, clients must create their account to invest, which is called Demat account where shares of the individual are stored. similarly, the broker also has an account called Pool account.  A pool account is essentially an account where all the shares of the client are deposited and then are sold. if the shares are bought, first they are transferred into the pool account and then into the client Demat account.

A broker can't steal the shares directly from the Demat account. Here a document comes into the picture and it is called the Power of Attorney (POA). POA is the client as an individual giving permission to any broker to take out shares from his Demat account and transfer it to the bank.

ETHICAL ISSUE:

Karvy tried to find out certain Dormet accounts(in which there is no real activity for 5 years or more) and transferred the shares to the pool account as they already had a POA. From the pool account, they transferred to the bank. They took a lean on the shares against which they took a loan from the bank and was forwarded to the subsidiaries of Karvy.

Later, NSDL and CDSL, leading Depositories in India with the help of SEBI(securities and exchange board of India) transferred almost 90% of securities back to their clients and RbI classifies Karvy as NPA (Non-performing Asset) and shutdown the online stock interface.

          

It is unethical of Karvy to misuse the Power of Attorney(POA) obtained from its clients, and manipulating the account of their shareholders and breaking the trust.

"Ethics and Safety are two sides of the coin in a business relationship"

Drop a comment below and share your views about this issue which is turning into a season of misery for India's financial sector.