Mumbai: In an unexpected turn of events, Chandrasekhar Bhaskar Bhave, chairman and managing director of National Securities Depository Ltd (NSDL), has suddenly emerged as the new front-runner to become India’s new capital markets regulator.
If he is formally approved— an announcement could come as early as this week—it will be a stunning turn of events for Bhave, 57, whose organization has fought a bitter legal battle with the regulator, the Securities and Exchange Board of India (Sebi) since April 2006, when Sebi uncovered a massive scam involving the cornering of share allotments in initial public offerings (IPOs) for small investors.
Front-runner: C.B. Bhave
Indeed, it appeared until this week that Bhave was being ruled out as the replacement for current Sebi chairman M. Damodaran precisely over this dispute.
Even Mint had reported earlier that Bhave’s name was not part of four finalists, which included Damodaran, as he was ruled by the selection committee as eligible for an extension. The selection committee was chaired by cabinet secretary K.M. Chandrasekhar.
It is not uncommon in India for sensitive positions to be decided at the last minute with the occasional rank outsider being given the job.
And, late Wednesday night, it appeared that Bhave had indeed emerged as the new front-runner with the Prime Minister’s Office believed to have signed off on the choice.
Mint couldn’t get an independent confirmation of this, but two people intimately familiar with the selection saga indepedently said Bhave has emerged as the new lead candidate for the job.
The other finalists for the job included Jaimini Bhagwati, additional secretary, economic relations, ministry of external affairs; U.K. Sinha, chairman and managing director (MD) of UTI Asset Management Co. Ltd and M.B.N. Rao, chairman and MD of Canara Bank.
Damodaran retires on 17 February.
While Bhave’s recent dealings with Sebi have been in the context of the legal dispute, he has previously worked at the regulatory body as senior executive director, leaving in 1996.
Bhave belongs to the 1975 Indian Administrative Service batch from the Maharashtra cadre and had served as a deputy secretary in the petroleum ministry between 1984 and 1989. At Sebi, which he joined in 1992, Bhave was initially in charge of the secondary and later primary markets.
The enactment of the Depositories Act in August 1996 led to the formation of NSDL, which was the first depository in India. Securities are held in depository accounts, which is similar to holding funds in bank accounts, and transfer of ownership of securities is done through simple account transfers. This does away with most paperwork and actual share certificates. As of September, the value of securities held in so-called dematerialized form at NSDL was just more than $1 trillion (Rs39.60 trillion).
The Sebi-NSDL saga began in April 2006 when Sebi unearthed a scam involving depositories, depository participants and two dozen market operators, who allegedly played a role in using 59,000 fictitious demat accounts in cornering share allotments in IPOs for small investors.
In an ex-parte order, Sebi had said the depositories “fail-ed to exercise oversight over the depository participants” and the promoters of NSDL (and CDSL, another depository) were directed to take “all appropriate actions including revamping of management.”
In November 2006, Sebi ordered NSDL and a few others implicated in the IPO scam to return Rs115 crore in “illegal profits” made from IPO deals. Of this, NSDL’s share was Rs45 crore. NSDL appealed to the Securities Appellate Tribunal (SAT), which, in December, set aside the Sebi order, describing its action as a clear “violation of the principles of natural justice.” Sebi investigation on the IPO scam isn’t concluded.
In a December interview with Mint, which first reported the tribunal’s order, Bhave said,?while?he?was relieved with the order, he was “feeling very sad that we had to move SAT. As an institution, NSDL would be reluctant to take any legal recourse against the regulator, but unfortunately, we were left with no option in this matter.”
Bhave then went on to say: “I don’t think there are victories against regulators. I would prefer to look at this matter in a more constructive manner. SAT has laid down some very valuable ground rules and these would serve the capital market well in future. All market intermediaries, including NSDL, should learn from the episode of IPO allotment scam and correct their systems to ensure similar things don’t occur again.”