Mumbai: In February, Gagan Rai took over as managing director of India’s premier depository National Securities Depository Ltd, or NSDL, after its chief C.B. Bhave moved out to head stock market regulator, the Securities and Exchange Board of India (Sebi). The markets regulator had in April 2006 uncovered a scam involving the cornering of share allotments meant for small investors in initial public offerings, or IPOs, and later that year ordered NSDL and a few others to return Rs115 crore of “illegal profits” made from such IPO deals. NSDL’s share of the fine was Rs45 crore.
The depository appealed to the Securities Appellate Tribunal, which, in December, set aside Sebi’s order.
Changing approach: Gagan Rai says NSDL is not just a depository. Being a database management company, it has taken up projects of national importance such as the tax information network. Ashesh Shah / Mint
The regulator’s probe into the IPO scam is yet to be concluded but Rai says NSDL always had systems in place to protect investors.
NSDL holds around 9.5 million demat accounts with securities worth Rs42 trillion. Rai admits that with the stock market meltdown, the number of new accounts opened has halved, from 200,000 to 100,000 a month, but insists that NSDL isn’t just a depository but a database management services firm taking on new projects such as maintaining a database of subscribers to the government’s new pension scheme as well as creating a system for capturing information on customs and excise taxes. Edited excerpts:
How have you tightened systems after NSDL was charged in the 2006 IPO scam?
The matter is sub judice and I wouldn’t like to comment on it. But Sebi has taken measures such as shortening the period for IPOs and a new refund process to improve the whole listing process. Besides, now it is compulsory to quote permanent account numbers (PAN) for market transaction. Therefore, it will be possible to weed out multiple applications, if there are any.
What about systems at your end?
Our systems were always in place. Now we can handle more volumes and there is another initiative about which we are talking to Sebi. It is about issuance of rights entitlement through demats, in which a person will get rights such as warrants in demat form and he or she can apply for shares. This will happen in the next few months.
Are you suggesting that your systems were in place and things still went wrong?
The matter is sub judice and I won’t comment on it.
So you are saying that there is nothing more you need to do to ensure that such incidents don’t happen in the future.
We have learnt that after the tax information network was implemented, NSDL has started working on another project for indirect taxes.
The tax information network project, which was successfully implemented, is basically an upload of TDS (tax deducted at source) returns and the creation of a PAN ledger for assessees. A similar thing can be done for CBEC (Central Board of Excise and Customs, which helps formulate policies regarding levy and collection of customs and central excise duties) returns.
We are talking to CBEC and the government for this purpose and we hope that in the next two months something will work out.
What will be its impact?
The entire data will be available at one place and a lot of information can be obtained, which the government can use.
How many investor accounts do you have? How many accounts have you frozen due to non-compliance of PAN and KYC (know your customer) norms?
As of now, we have 9.5 million accounts. Of these, 0.8 million accounts have been frozen due to non-PAN compliance. We have sent letters and emails to these investors to submit their PAN. Earlier, this number was three million but it has come down now.
What is the worth of securities lying in these frozen accounts?
The total amount of securities in these accounts is Rs14,100 crore.
That’s a lot of money.
I know, but the total money is Rs42 trillion. So it is only 0.33% of the total amount.
Has the stock market slump affected the growth of new demat accounts?
Yes, the number of new accounts being opened has definitely come down.
Can you give us some figures?
It is difficult to give exact figures. Till last year we used to open about 200,000 accounts every month, and now it is about 100,000.
During the Reliance Power IPO there was a huge rush to open demat accounts. Do you see such activity throughout the year?
Generally, whenever there is a spate of IPOs or the market is better, a lot of people come to open accounts to take advantage of the situation. It is an individual investment decision. We are just an infrastructure provider.
NSDL is India’s largest depository. But in the past few years the only other depository, Central Depository Services Ltd (CDSL), has been growing rapidly and faster. Do you see a potential threat in CDSL?
I wouldn’t call it a threat. CDSL is our competitor and competition is always good for the consumer.
How do you plan to consolidate your position in the market?
NSDL is not just a depository. It is a database management company. Therefore, moving on from the depository business, we set up the tax information network. We then thought of having more projects and moved to CRA (central record keeping agency) for the new pension system on behalf of the Pension Fund Regulatory and Development Authority. The idea is to move to projects of national importance.
What other project are you planning after CRA?
We are also thinking of CRA for the unorganized sector. Under this, a citizen who is not a government employee will be able to join the CRA scheme. Such people will be able to go to the pension fund intermediary, open an account and invest money. For this, the PFRDA is yet to formulate the guidelines.