Ref. : ER/Press/’04/Demat.12/dG

Dematerialisation a Great Success in India : SEBI Chief

The Chairman of the Securities and Exchange Board of India (SEBI), Mr. G. N. Bajpai, has described dematerialisation of securities as “a great success” not only in India but also globally. Dematerialisation accounts for an estimated 99 per cent of capital market in the country today, he said, adding : “Indian dematerialisation has emerged as one of the most efficient in the world.”

Mr. Bajpai was delivering the Keynote Address at the Inauguration of a two-day Seminar on ‘Dematerialisation : Investor Concerns’ at the Ellisbridge Gymkhana, Ahmedabad, this morning. The Seminar has been organised by the Stock Exchange, Mumbai, and Consumer Education and Research Society (CERS), Ahmedabad.

The Speakers included, besides Mr. Bajpai, Dr. (Ms) Sheela Bhide, IAS, Joint Secretary, Department of Company Affairs (DCA), Government of India, New Delhi; Mr. Kisan Ratilal Choksey, Trustee, Mumbai Stock Exchange & Investors Protection Fund (IPF), Mumbai;Prof. Manubhai Shah, Chairman Emeritus, Consumer Education and Research Centre (CERC), Ahmedabad; and Prof. J. P. Singh, Indian Institute of Management, Ahmedabad (IIM-A).

Mr. Bajpai said that individual investors were not exiting the capital market but were entering it in large numbers, churning their portfolios, selling old stocks, and buying new ones. An estimated 1,00,000 dematerialised accounts were opened by this segment of investors every month.

Outlining the many advantages of dematerialisation, including cost reduction, Mr. Bajpai projected the SEBI perspective vis-vis-vis the capital market, saying that the three primary responsibilities of SEBI were to (i) develop the market, (ii) regulate it and ensure that it worked efficiently, and (iii) protect investors. The three players involved in this scenario were investors, issuers and intermediaries. As investor protection was uppermost on the SEBI agenda, no one player could be benefited at the cost of the other two.

He pointed out that India was now a globally integrated market and not insular. In case issuers felt uncomfortable with the Indian market, they would prefer to operate abroad. He suggested that the system of dematerialisation be accessible, cost effective, efficient and less risky.

Earlier, Dr. Ms Sheela Bhide expressed investors’ concern saying the capital market was facing volatility and long-term investors were exiting the market which might not be good in the long run. The cost of dematerialisation, procedural delay and such other “irritants” might be the reasons. She also referred to the lack of transparency in the market and distortion in the fee structure of DPs in case of small investors vis-a-vis- large investors.

Dr. (Ms) Bhide suggested that since large depositors benefit greatly from dematerialisation in terms of cost of staff, the companies could contribute part of the savings which would meet some of the basic costs. She also suggested the capping of charges by SEBI as an interim measure till the DPs become competitive; the mounting of awareness campaign for investors; training programmes for DPs, especially in small towns with very few DPs which exploit the situation; and focus on how to protect the interest of small investors who are not in the day-to-day business of the stock market.

She said that FIIs and large investors have benefited from this use of IT, not small investors. A recent survey of 130 companies showed that even now most of them have shares in physical form. The bulk of investors are not part of the demat system.

If capital market is to stabilise then a big percentage of small household investors should be there in the market. Currently the percentage is only 4 in India against 55 in the USA, she added.

Dr. (Ms.) Bhide said that instead of saying dematerialisation should be made optimal, the cost should be reduced to make the system friendly and keep small investors within the fold.

Mr. Kisan R. Choksey said that the huge cost and efforts required for issue of shares in physical form and transfer from one beneficiary to another were no longer required. Thus the companies stand to benefit a lot from dematerialisation and, therefore, there should be some just and fair mechanism whereby the companies contribute 20 to 30 pert cent of the amount saved by them to the depositories, so that the demat account holders may receive some benefit in the form of reduced charges.

He said that a crucial system like dematerialisation was always under public scrutiny as it impacted the investors, both big and small. “If that be the case, it is but natural for all of us to continuously examine the system to bring about further improvements for the benefit of common investors,” he added.

Mr. Choksey said that today India is close to a total eclipse of paper certificate regime in the equity segment. Near total Dematerialisation within a short period of about 7 years has been a record of its kind, which has no parallel in the world, he added.

Earlier, Prof. Manubhai Shah welcomed the guests and briefly acquainted them with the growth of CERC in terms of its activities, manpower, infrastructure, etc. over the past 25 years. Prof. J. P. Singh proposed a vote of thanks.

Date : 28/02/04
Place : Ahmedabad

Pritee Shah
Editor
INSIGHT - The Consumer Magazine

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CONSUMER EDUCATION AND RESEARCH SOCIETY
“Suraksha Sankool”, Thaltej, Sarkhej-Gandhinagar Highway,
Ahmedabad- 380 054 (INDIA)
Phone: 079-7489945-46 Fax: 079-7489947
E-mail: cerc@wilnetonline.net
Web Site: http://www.cercindia.org
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