Bajaj Finance has written to the Securities and Exchange Board of India (Sebi) requesting to unfreeze the funds of Rs 1,200 crore lying in the accounts of individuals blocked by the regulator for insider trading in Zee Entertainment Enterprises.
The freezing has blocked IPO financing provided to these accounts by Bajaj Finance, which could create a severe cash crunch and a subsequent default on repayments by the shadow lender.
As Sebi has debarred 15 entities from trading in capital markets and ordered impounding of gains of Rs 23.84 crore, HDFC Bank — where accounts were opened by such individuals for IPO financing —informed Bajaj Finance that such accounts have been blocked for any debit.
Accounts that belong to the Jajoo Family and the Chawla Family, who are named in the Sebi order, would be frozen until Rs 23.84 crore is not transferred to a separate escrow account. But HDFC Bank has frozen the account, including funds of over Rs 1,200 crore. The Sebi order names Ritesh Jajoo, Gomati Rotalia, Daljit Chawla, among others, for insider trading in Zee shares.
Bajaj Finance has written to the markets regulator, saying like its normal business practice, the non-banking finance company (NBFC) borrowed funds from various lenders and is bound to meet timely repayment obligations. The NBFC is undergoing a cash flow crunch on freezing such accounts.
In its response to queries, Bajaj Finance said it maintains adequate liquidity for its business operations. “The company does back to back financing arrangements for IPO financing so it is important that money is released to us from the customer/s account on the scheduled repayment date.”
However, Bajaj Finance is maintaining more than adequate internal cash surpluses for repayment of its committed liabilities. “It is also important to note that in this case, the customers’ obligation is very small compared to the amount blocked,” Bajaj Finance said.
The blockage of funds would adversely impact the shadow lender’s ability to repay and may, in turn, result in a default, it is said to have told the regulator. Such a situation may halt Bajaj Finance’s business and its reputation would be at stake without having committed any wrongdoing, the NBFC is said to have told the regulator.
In its response, Bajaj Finance said it maintains adequate liquidity for its business operations. “There will not be any impact on our business operations,” the NBFC told this newspaper. The intention of the regulator was to freeze funds of Rs 23.84 crore; however, the action has unintentionally led to the freezing of Bajaj Finance’s fund of over Rs 1,200 crore.
The action on insider trading by Sebi was taken to protect the interest of shareholders. However, the interest of Bajaj Finance’s shareholders is also at stake as it is also a listed firm.
HDFC Bank is also said to separately approach Sebi for clarity over the treatment of such accounts. Bajaj Finance said IPO financing provided to these individuals was driven by the company’s internal product programme.