Some of the major lenders to Karvy, including HDFC Bank, ICICI Bank, Bajaj Finance and IndusInd Bank had approached the SAT against the SEBI instruction to NSDL to reverse the shares transferred by Karvy to the lenders, back into the customer accounts. This had left the lenders without any collateral to back their loans virtually making these loans into unsecured loans. With Karvy in financial trouble, these banks are not hopeful of getting back their money, except through the NCLT process. The only fallback they had was the shares but now even that has been transferred back to the clients.

There were several reasons why SEBI has rejected the plea of the lenders.

· Banks are supposed to do due diligence about the ownership trail of shares, especially when they accept pledges from brokers. Lenders are perfectly aware that brokers have stock-in-trade and also have client shares.

· Most lenders are supposed to take an undertaking of ownership from the broker for shares pledged. That again appears to be a lapse in process.

· SEBI has also emphasized that the actions of Karvy should have raised suspicion levels at lenders. For example, Karvy was willing to offer an inordinately high haircut. Secondly, Karvy Stock Broking owned shares of just about Rs.27 lakhs in its own books as per the last balance sheet. These should have raised suspicions.

· Lastly, SEBI has also objected to the fact that a number of these pledge loans were given after September 20th, when the ban on lending against pledged shares was supposed to take effect.

Now SEBI has also requested the RBI to verify the details of these loans and verify details therein. Now lenders can only proceed via the civil court route in this case.