Sebi fights to retain Rs1,672 crore in surplus funds
Mumbai: The Securities and Exchange Board of India (Sebi) is fighting the government to retain Rs1,672 crore of surplus funds lying with it after the Comptroller and Auditor General (CAG) flagged the issue in its 2017 report.
According to the CAG, Sebi’s surplus funds should be deposited with the government in a public account. The market regulator believes that it is not obliged to do so under the Sebi Act and such a transfer will raise questions on its autonomy.
Sebi raised this issue in a meeting of the Financial Stability and Development Council (FSDC) on 29 December, according to two people aware of the matter.
However, the department of economic affairs (DEA) has decided that these funds need to be deposited in a public account. The chief controller of the accounts and budget division is drafting accounting guidelines for this account, said one of the two people cited earlier, both of whom declined to be named.
A similar public account will be created for other regulators such the Insurance Regulatory and Development Authority (Irda), the Pension Fund Regulatory Development Authority (PFRDA) and 11 other regulatory/government bodies that were flagged off by the CAG, this person added. According to the CAG report, Rs6,064 crore of surplus funds are with these government bodies and are outside government accounts.
Sebi and finance ministry spokespersons did not respond to emails seeking comment.
“While DEA holds this view, the FSDC has still not come to a conclusion and the issue still needs to be discussed between Sebi and the ministry of finance,” said the second of the two people cited earlier.
This is not the first time the regulator is battling for control over its funds. Sebi earns revenues from levying fees on stock exchanges and brokers, for processing initial public offerings, debt issues, mutual funds and for providing informal guidance to firms.
The regulator is currently in dialogue over service tax dues of Rs130 crore (for the years leading to March 2016) for the services it provides. From April 2016, its services were put in the negative list for service tax.
The issue of how to deal with surplus funds of government bodies has been an subject of debate since 2011. That year, the government opened a Sebi general fund as part of its public accounts, but no funds have been deposited in it so far. In January 2016, the DEA referred the matter to the law ministry. In October 2016, former Sebi chairman U.K. Sinha told the CAG that keeping Sebi funds in a government account would undermine the regulator’s autonomy. In July 2017, the DEA informed the CAG about the attorney general’s view that the Sebi Act does not permit the transfer of such funds to public accounts.
“The Sebi Act would need to be amended to effect the transfer of funds to public account,” said the second of the two people cited earlier.
“The issue is whether the government wants the funds or control of funds. If the idea is to have control of funds, then the government already has it because all spendings from the reserve funds happens through a board nod. And the Sebi board has two government nominees and two ministry officials for adequate representations from independent members. The only reason to have these funds would be to manage fiscal deficit and that too would be managed to a very minuscule extent. One cannot compromise on the autonomy of regulators, they need to have control over these funds for capital market expansion and development,” said a former Sebi official who asked not to be named.