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PROJECT REPORT
Submitted for the degree of B. Com Honors in Accounting and Finance under
the university of Calcutta.

TITLE OF THE PROJECT

CASE STUDY ON KARVY STOCK BROKING LIMITED (KSBL)

SUBMITTED BY
NAME: Madhu Singh
CU REGISTRATION NO: 047-1211-0925-20
CU ROLL NO: 201047-11-1029
COLLEGE ROLL NO: 200873

SUPERVISED BY
NAME OF THE SUPERVISOR:
NAME OF THE COLLEGE:

MONTH AND YEAR OF SUBMISSION

MONTH:
YEAR:
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ANNEXURE – 1A
Supervisor’s Certificate
This is to certify that Madhu Singh, a student of B. Com 6 th Semester Honors in Accounting
and Finance of SIVANATH SASTRI COLLEGE under the University of Calcutta has
worked has worked under my supervision and guidance for his Project Work and prepared a
Project Report with the title “Karvy Stock Broking (KSBL)”
The project report, which she is submitting, is her genuine and original work to the best of
my knowledge.
Place: Signature
Date: Name:
Designation:
Name of the College:
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ANNEXURE – 1B

STUDENT’S DECRATION
I, Madhu Singh, hereby declare that the following project with the title “KARVY STOCK
BROOKING LIMITED CASE”. Submitted by me for the partial fulfillment of my B.COM
HONOURS degree in Accounting and Finance under the university of Calcutta is my original
work and has not been submitted earlier to any other University/Institution for the fulfilment
of the requirement for any course of the study.
I also declare that no chapter of this manuscript in whole or in part has been incorporated
from earlier work done by others or by me. However, extracts of any literature which has
been used for this report has been duly acknowledged providing details of such literature in
the reference.
PLACE:
DATE:

SIGNATURE:
NAME:
ADDRESS:
CU REGISTRATION:
CU ROLL NO:
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ACKNOWLEDGEMENT
This project has been a huge challenge for me. To explore and work on the field I have
studied for so long felt like a relief. It was a wonderful experience to explore and work in
areas I have not, researching to explore and work in areas I have not, researching areas my
academics could not cover. It is a project that can help you enhance you finding and
researching abilities.
I would like to thank our university for giving me this opportunity to work on this project. I
got to learn a lot from this project about NBFC, the importance of due diligence when
investing in the financial sector. It is important to do thorough research before investing any
money, and to consult with a financial advisor or expert before making any major investment.
I would also like to thank our college Sivanath Sastri for giving us time and all facilities
required for the project. I would like to thank my teacher Sreetama Ma’am who has helped
me in every step of this project and guided me throughout. At last, I would like to extend my
heartfelt thanks to my parents for constantly believing in me and making this project a reality.
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INDEX
CHAPTERS CONTENT PAGE NO
CHAPTER 1 INTRODUCTION 6-10

1.1 Background of the study

1.2 Importance of the study
1.3 Literature review
1.4 Objective of the study
1.5 Research and methodology
1.6 Limitation of study
1.7 Chapter planning
CHAPTER 2 CONCEPTUAL FRAMEWORK

2.1 Meaning of fraud

2.2 Brief history of Karvy stock broking
company
2.3 Fraud decoded
2.4 SEBI Regulations
2.5 Forensic audit
2.6 Auditors of the company
CHAPTER 3 PRESENTATION, ANALYSIS,
AND FINDINGS OF DATA
3.1 Presentation of data
3.2 Tables and graphical representation
3.3 Return on shareholders’ equity
3.4 Return on investment
3.5 Earnings per share
3.6 Findings
3.7 Profit and loss account
3.8 Balance sheet
CHAPTER 4 CONCLUSION AND
RECOMMENDATION
4.1 Conclusion
4.2 Recommendation
BIBLIOGRAPHY
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CHAPTER 1
INTRODUCTION
1.1 BACKGROUND OF STUDY

Over more than four decades since 1964, when Chapter III B was included in the
Reserve Bank of India Act, 1934, assigning limited authorities to the bank to regulate
deposit taking companies, the Reserve Bank of India has initiated measures to bring the
non-banking financial sector (NBFC) sector of the economy within the realm of its
regulations. January 1997 witnessed drastic changes in the RBI Act, 1934, especially
Chapters III-B, III-C, and V of the Act with the fundamental objective of putting in place
a complete regulatory and supervisory structure, aimed at protecting the interest of
depositors as well as ensuring the robust functioning of NBFCs.

In the period following the amendments of the Act in 1997, the non-banking financial
sector has evolved substantially in terms of operation, variety of market products and
instruments, technological sophistication etc. further, in recent years the NBFCs have
gained paramount significance by adding significant depth to the overall financial sector.

But despite the significant growth of NBFCs the numerous frauds in the sector has
shaken the economy to its depth. Though the banking industry is generally well regulated
and supervised, the sector suffers from its own sets of challenges when it comes to
ethical practices, financial distress and corporate governance.

According to the circular issued by the Reserve Bank of India dated 6 march 2023, there
are a total of 5521 NBFCs and CoR which has been cancelled by the RBI as on 28th
February 2023, including Karvy consultants ltd and more.

With the help of power of attorney (POA), Karvy stole shares and presented it as a
security to the banks. The loan money obtained from the banks did not go to karvy’s
shareholders but instead invested in its real estate business.
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1.2 IMPORTANCE OF THE STUDY

 To see how the NBFC sector provides work
 To investigate the leading NBFC scam that shook the market
 To discover the loops in the system.

1.3 LITERATURE REVIEW

The following shows the past analysis of the current topic.

o Prof. Chetan Jaikishan Bhutada and Dr. Shivanand Sanmath (2022)

NBFC’s have been playing a significant role, not only from a macroeconomic
point of view but also in terms of the structure of the Indian Financial System.
When it comes to satisfying a company’s numerous financial needs, they are seen
as an ideal replacement for the traditional banking institutions, and in some cases
even as a superior choice.

o Subina Syal and Menka Goswami (2012)

The aim of the study is to analyze the financial performance and growth of non-
banking financial institutions in India in the last 5 years.

o Shail Shakya (2014)

Many specialized services such as factoring, venturing capital finance, and
financing road transport were championed by these institutions.

o Naresh Makhijani (2014)

Over the last few years the non- banking finance companies (NBFC) sector has
gained significant advantages over the banking sector has gained signified
advantages over the banking system in supplying credit under served and
unbanked areas given their reach and niche business model.

o Jafor Ali Akhan (2010)

Covers financial system in India. It covers the financial intermediaries in India.
Hire purchase finance is by far the largest activity of NBFC’s. the rapid growth of
NBFCs has led to a gradual blurring of dividing lines between banks and NBFCs,
with the exception of the exclusive privilege that commercial bank exercise in the
issuance of cheque.
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1.4 OBJECTIVE OF STUDY

The chief objectives of the study are

 To get clear understanding of NBFC and their workings
 To unfold the fraud of karvy broking company
 The ultimate loss of the shareholders

1.5 RESEARCH METHODOLOGY

 Area of project: The project deals with prominent NBFC company of India
 Source of data: The project is based on secondary data, acquired from various
websites, books, financial statements, ordinary resolutions and special resolutions
of respective company. The study covers data from profit and loss account and
balance sheet of the company.
 Period of study: This project works on information from the financial reports of
karvy broking company for the period of five years from 2018-19 to 2021-22
 Formulation of project: The project was formed using the help of Microsoft
word and Microsoft excel for the graphs and tables and formulas. These
secondary data are analyzed into different tables and their respective charts.

1.6 LIMITATION OF THE STUDY

In spite of the time and effort put on the project and the amount of research done, the
project suffered from several limitations. Some of them are listed below-
 The project is based on secondary data and hence might not be accurate.
 The study is done analyzing data for past five years and current year is not
included which makes the project a bit back handed
 Full outlook cannot be drawn because the project does not deal with past years
other the those specified
 The study also suffers from limited time and restrictions of pages and word limit
hence description parameters are not used in this project.

1.7 CHAPTER PLANNING

 Chapter 1 deals with the introduction to the topic, its history and background.
Contains literature review of similar analysis done on the project. The
requirements of the objectives of the study. Procedure of research. Last but not
the least the limitations faced during the project and effects of it.
 Chapter 2 deals with the conceptual framework and explanations on the topic.
 Chapter 3 focuses on the case study the charts and graphs on the case of fraud
 Chapter 4 is the conclusion of the project. It closes the project with a result. It
deals with conclusions based on the analysis of the data.
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CHAPTER 2
CONCEPTUAL FRAMEWORK
.
2.1 MEANING OF FRAUD
Chapter III of the RBI Act classifies frauds.

1. In order to have uniformity in reporting, frauds have been classified as

under mainly based on the provisions of the Indian Penal Code:

(i) Misappropriation and criminal breach of trust.

(ii) Fraudulent encashment through forged instrument, manipulating of
books of account or through fictitious accounts and conversion of
property.
(iii) Unauthorized credit facilities extended for reward or for illegal
gratification.
(iv) Negligence and cash shortages
(v) Cheating and forgery
(vi) Irregularities in foreign exchange transactions.

2. Cases of negligence and cash shortages and irregularities in foreign

exchange transactions referred to in items are to be reported as fraud if the
intension to cheat/ defraud is suspected/ proved. However, the following
cases where fraudulent intension is not suspected/ proved, at the time of
detection, will be treated as fraud and reported accordingly.

a. Cases of cash shortages more than Rs.10000/- and

b. Cases of cash shortage more than Rs.5000/- if detected by
management/ auditor/ inspecting officer and not reported on the
occurrence by the persons handling cash.

3. Applicable NBFCs having overseas branches should report all frauds

perpetrated at such ranches also to the bank as per the format and
procedure detailed under chapter IV.
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2.2 BRIEF HISTORY OF KARVY STOCK BROKING LIMITED COMPANY

In 1983, five men who were working as chartered accountants decided to start their
own venture called Karvy Stock Broking Ltd (KSBL) in Hyderabad.
Karvy soon grew into a giant financial services company in India providing services
such as equity, commodities trading, depository and wealth management. It soon got
launched in various countries such as Bahrain, Dubai, Philippines and the United
States.
In the mid-1990s, karvy entered stockbroking and advisory businesses. Being there
for many years, karvy gained the trust of a million Indians who invested in the
financial company.
However, this romance was soon to end when in November 2020, the Securities and
Exchange Board of India (SEBI) barred karvy from purchasing and accepting any
new shares.
The reason, karvy defrauded around 2300 crores of client’s funds by pledging their
shares to various lending banks. It took a loan from and then invested in subsidiaries,
mainly in its real estate market.

2.3 FRAUD DECODED

We first need to understand the concept of taking loan against share.
Firstly, there is a demat account which is owned by person X. X has n number of
shares in their demat account. A broker’s demat account, in this case, karvy, is known
as a pool account. A pool account is described as a place where all shares are first
deposited and then sold or vice versa.
So to break it down, a person named B wants to sell their shares. And C wants to buy,
as per the procedure, B’s shares will first go to karvy’s pool account and then will be
transferred to C’s demat account.
So say X wants to have a loan against his share. X transfers to lending banks who take
it as a security and in return provide money. This money is sent to the pool account
and eventually to X’s demat account.
Now, in between the exchange, the banks offer loans at the rate of some percentage
(say 10%). Karvy then lends the loan at the rate of 18%( for example) to X. hence,
karvy makes a profit of 8%.
Now this is how the process of broking takes place.
The brokers are not free to take shares from their client, but there is a way and that is
using Power of Attorney (POA). This is a superpower or permission given to brokers
by clients to make free decisions about their shares.
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In November 2020, Karvy Stock Broking Ltd (KSBL), from its pool account, took
hundreds of shares from dormant demat account. Dormant demat accounts are those
that have been inactive for many years.
With the help of POA, Karvy took the shares and presented it as securities to the
banks such as ICICI bank, HDFC bank, Indus bank etc. the loan money obtained from
the banks did not go to the dormant accounts but instead invested in Karvy’s real
estate business.
Karvy clearly violated market regulations. It defrauded 2300 crores of as many as
95000 dormant client accounts.

2.4 SEBI REGULATIONS

When the issue came into light, SEBI barred Karvy from taking any new clients and
further trading.
SEBI also directed National Securities Depository Limited (NSDL), to return the
shares to the estranged clients with immediate effect nearly 90% of the shares were
returned to the shareholders.
SEBI has banned Karvy Stock Broking and Parthasarathy from dealing in securities
for seven years. In its final order, on Friday 28th of April 2023 imposed a fie of Rs.12
crores on the brokerage and Rs.7 crores on its former chairman C. Parthasarathy.

2.5 FORENSIC AUDIT

The central crime station police have filed 5000-page charge sheet against officials of
the Karvy Stocks Broking Limited (KSBL) in a second case for cheating investors of
Rs15 crore.
The firm’s managing director, C Parthasathy along with six other executives have
been accused of fraud, and were booked in other cases (by Hyderabad police) for
cheating investors of about Rs 2000 crore.
According to the police, the accused diverted the money, and used it for personal
purposes without the knowledge of the investors. Parthasarthy and the co-accused
were booked by the police based on a complaint by 12 investors.
The CCS police had filed a charge sheet in the matter, following which the which
Enforcement Directorate, after initiating a PMLA probe, took a copy of the charge
sheet and other relevant documents to probe the money laundering case. The ED also
took reports of Income-Tax, RBI, SEBI and NSE to make their cases a strong one.
It has been alleged that Karvy Stock Broking Limited (KSBL) management allegedly
committed bank frauds of several hundred crores of rupees. The firm took loans from
various banks like ICICI and Indus Bank.
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Induslnd Bank gave a loan of Rs 137 crore to KSBL on the basis of securities, shares
and personal guarantees. One of the guarantor was chairman of KSBL, C.
Prathasarathy. They suppressed the fact that the pledged securities belonged to
customers.

2.6 AUDITORS OF THE COMPANY

BSR & Associates LLP (BSR), chartered accountants, were appointed by the
shareholders as the statutory auditors of the company to undertake statutory audit
(from FY 2014 – 2015 till FY 2018 - 2019).
Its officially a member firm of KPMG International’s audit firm network and also has
its offices in the same buildings as KPMG, apart from its employees identifying
themselves as part of the KPMG group.
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CHAPTER 3
PRESENTED, ANALYSIS, AND FINDINGS OF DATA

3.1 PRESENTATION OF DATA

In this chapter we will focus