SEBI Imposes Penalty on HDFC Bank for Invoking Client Securities
By: Ashwathy Nair
- An enquiry by SEBI found that the lender had unilaterally invoked securities pledged by BRH.
- The capital market regulator has directed the bank to deposit the same amount with interest.
- For non-compliance with the Interim Order, a penalty of 1 crore can be imposed on the Noticee.
A penalty of ₹1 Crore has been imposed on HDFC Bank by the Securities and Exchange Board of India (SEBI). In violation of an interim order by the regulator, the penalty is being imposed for invocation of customer securities pledged by stock broking company BRH Wealth Kreators.
In an investigation by SEBI, it found that the lender had unilaterally invoked securities pledged by BRH to the extent of ₹ 158.68 crores and the capital market regulator has thus ordered the bank to deposit an equal amount in a separate interest-bearing escrow account, along with interest from October 14, 2019, to date at a rate of 7 per cent per annum, before the issue of settlement of securities of customers is reconciled.
An interim order cum show cause notice has been issued by the regulator against the BRH Wealth Kreators Ltd (which was earlier named as BMA Wealth Creators Ltd) and certain other entities on 7th October 2019 warning the noticee from accessing the securities market and buying or selling in securities, either directly or indirectly.
The interim order had instructed the noticees not to dispose of or alienate any assets, whether it is movable or immovable, or in order to establish, invoke or release any interest or change on any of those properties, with the exception of the prior authorization of the National Stock Exchange of India Ltd (NSE) and the BSE.
BRH (₹191.16 crores) and BRH Commodities (₹26.61 crores) were granted credit facilities by HDFC Bank as a loan against securities (LAS), out of which ₹87.75 crores was granted as LAS.
HDFC Bank allegedly relied on securities pledged by BRH to the amount of ₹158.68 crores on 14th October 2019. The above-mentioned invocation by HDFC Bank of the pledge of customer securities available in the above-mentioned two BRH Demat accounts allegedly did not comply with the instructions contained in the interim order.
The object of the interim order was to protect the interests of BRH’s investors or customers by freezing the assets of the notices immediately and also to ensure that BRH ceases and withdraws from all involvement in the stock market.
