The Hindu Business Line : NSDL building data on staff for IT cos

In a decade of existence, National Securities Depository Ltd (NSDL) can rightfully claim most of the credit for transforming the country's capital markets from an environment of physical share certificates to a cleaner paperless format. The problems associated with the physical share certificates such as fake shares, bad delivery and lose of share certificates etc are now a thing of the past.

But, a recent SEBI interim order on the IPO investigation has blamed NSDL for `contributory negligence' for the IPO share allotment scam.

Mr C.B. Bhave, Chairman & Managing Director of NSDL, in an interview, refused to speak anything on the IPO scam saying the matter was sub-judice.

Mr Bhave, however, explains some of the other projects that NSDL is currently involved with - the setting up of tax information network for the Income-Tax Department and national skills registry for Nasscom.

Excerpts:

Can you give a status on some of the other works that you are involved with?

The Tax Information Network (TIN), a repository of nationwide tax related information, is being established by NSDL on behalf of Income-Tax Department . The Tax Department wants the coverage becomes as close to 100 per cent as possible so that accurate data comes into the system.

How long it will take to complete the process?

That will be difficult to say. But with the progress we have seen so far, during this year, we should reach very high degrees of accuracy as well as coverage.

Can you explain the work that you are doing for Nasscom?

The idea was to create a database of the employees of the IT and ITeS companies that are members of Nasscom. This is an industry initiative. The industry wants to do this because they find that in the recent years the turnover rate has increased appreciably. People change jobs more often for the same group of companies. For background verification for same employee again and again, this is an unnecessary cost.

But, they do not know what the earlier employer had done. So if you create a central database you will be able to get this information as to what the earlier employer had done. And the new employer may want to verify only some elements of that data or may not want to verify at all. He may rely completely on the verification done by the earlier employer. The industry feels that there will be overall cost savings in terms of the effort. We also gain some certain credibility in the market. Foreign companies, which outsource business from India, are very particular about the background verification. So they feel that this will help them in the process. This is an initiative wherein we have to first get the companies to join this. Then we need to go to the employees and convince them on the need to join the database. This work is now in a very preliminary stage. We are now focusing on companies to join us. Once the companies join us, we encourage the employees to join us. A few companies have signed up, a few employees have registered, but numbers are not large enough at the moment. All big projects start small.

How is the database structured? Will you be charging a fee from those who need the information on employees?

The way the database is structured is that the data belongs to the employee. So it is available only to the present employer. If that employee wants to apply somewhere else, then he has to authorise us to make that data available to the company where he is applying. So without his authority, we will not make that data available.

What are the steps taken by NSDL to ensure that all new demat accounts are genuine?

From April 1, 2006 onwards, no new demat accounts can be opened unless the investor gives is PAN card. The PAN number is then verified with the Income-Tax Web site to see whether the PAN is really registered in the name of person who is opening this account. That is one verification method that we have introduced. The other thing is by April 1 we had a lot of accounts. Those investors have given time up to September 30 to provide their PAN card and get registered. If they don't it by September 30, then from October 1 onwards those accounts will not be operated till they produce the PAN card.

In the SEBI's IPO investigation, it was found that people have used the common address methodology for financing and applying in various different names. We have done an analysis of the addresses in the depository system to find out whether more than 20 accounts are the same address. And we have asked the DPs to do a re-verification of the KYC (know your client norms). At one particular point of time, you may find that one particular address has only 19 accounts, but later one or 20 more accounts get opened. So this will have to be a continuous affair.

Are there any interesting findings from the new procedures that you have adopted?

What we have told the DPs was that you do the KYC verification. In case, you don't have the KYC documentation, then call the investor and get the KYC completed. But, if the investor doesn't turn up and if there is a flaw in your KYC documents, then freeze that account. If the investor turns up and gives you sufficient documentation, then you go forward on that account.

So, we found that there were about 4,000 accounts where accounts had to be frozen because investors did not come forward and KYC documents were not complete.

What are the other steps taken by NSDL?

As I said this is a continuous exercise. We will also look at how we can strengthen the KYC norms. In any case, with the coming of the Anti-money Laundering Act, everywhere KYC is becoming very crucial issue. KYC will continue to be a focus. (In the IPO scam), the suspicion was that names were either non-existent or photographs were simply borrowed for opening those accounts. We don't want that kind of a phenomenon. If one person very openly says I am so and so and I want to open an account, the system has no problem and you get identified anyway. However, if people are trying to hide and create some fictitious names, then we will have to intervene.

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