EY's Forensic Audit Of Karvy Stock Broking To Focus On Alleged Diversion Of Rs 1,100 Crore To Its Real Estate Arm
[ By Bobby Anthony ]EY’s forensic audit of Karvy Stock Broking will focus on alleged diversion of Rs 1,100 crore to its real estate arm Karvy Realty India, which is a real estate brokerage firm and also on-lends to other subsidiaries of the group.The alleged fund diversion during the past three years and reasons for deterioration of financial metrics of group companies will also be the focus...
EY’s forensic audit of Karvy Stock Broking will focus on alleged diversion of Rs 1,100 crore to its real estate arm Karvy Realty India, which is a real estate brokerage firm and also on-lends to other subsidiaries of the group.
The alleged fund diversion during the past three years and reasons for deterioration of financial metrics of group companies will also be the focus of the forensic audit to be conducted by EY.
EY is also set to probe the end use of the funds, besides the funds trail between Karvy Stock Broking and Karvy Realty. The realty firm, in turn, allegedly transferred the funds to several other companies. The liquidity crisis in the real estate industry may have hit Karvy Realty hard.
Incidentally, the company stopped giving financial information about its group companies, leading to multiple downgrades by rating firm ICRA in November.
Recently, the Securities and Exchange Board of India (SEBI) barred Karvy Stock Broking from taking on new clients citing alleged misuse of clients’ securities. In its order, SEBI stated that prima facie, a net amount of Rs 1,096 crore was transferred by Karvy Stock Broking to Karvy Realty between April 2016 and October 2019.
In a statement, Karvy said it made investments in subsidiary companies through Karvy Realty. “We are of the firm belief that the investments made through own funds of the group and borrowings other than the pledge of securities were fully compliant with the relevant provisions and directives of the regulator during the period that they were made,” according to the Karvy statement.
However, Registrar of Companies records showed that Karvy Realty did not submit its financial details since March 2018.
The last financial information provided to ICRA shows that Karvy Stock Broking was fast losing money. The primary reason for reduction in profitability was an increase in operating expenses and higher finance costs. The profitability indicators are lower than other brokers of a similar size.