The Hindu Business Line : Banning Karvy may create monopoly in MF registry

Stocktaking
The move would benefit CAMS - the lone competitor in registry business
"If found guilty, I would recommend a severe monetary penalty instead of closing down their R&T operations," - Prithvi Haldea
Karvy DP is the sole entity operating in the eastern part of the country

Hyderabad , May 7

The investigation of capital market regulator into the IPO scam and its subsequent interim order banning Karvy and other entities is likely to create monopoly in the share registry business.

Further, the SEBI order directing the Karvy depository holders to move over to other depository participant is expected to leave the retail investors high and dry in towns and cities in Eastern part of the country where Karvy is the sole entity providing depository participant activities.

Market observers point out that while SEBI's order halts Karvy's growth in the share registry business in general, it would create monopoly particularly in the mutual fund registry business where Karvy's lone competitor - Computer Age Management Systems (CAMS) - would rule the roost.

Serve monetary penalty

Karvy currently enjoys around 80 per cent market share in corporate registry business, while the balance market is shared among a number of players across the country.

In the case of mutual fund registry business, CAMS is the leading player with around 60 per cent market share, while the balance 40 per cent is with Karvy.

According to the Prime Database Managing Director, Mr Prithvi Haldea, "If the final order of SEBI bans Karvy from R&T business, it will in fact lead to the creation of not one but three monopolies - one in the mutual funds industry, the second in the public issue business and the third in the transfer agent/depository connectivity business."

"It is very important that we do not create or nurture monopolies as these are bad for the consumers. Look how competition in the telecom or the airlines sectors has changed the entire paradigm for the consumers. But that alone cannot be the ground not to punish the guilty. In this specific business, Karvy has had an outstanding track record spanning two decades, and it has again recently completed a huge allotment - that of RPL - within timeframe. If found guilty after final hearing, unless SEBI has valid reasons, I would recommend a severe monetary penalty instead of closing down their R&T operations," Mr Haldea told Business Line.

Further, he stressed on the need to address the systemic issues on top priority so that "we do not have yet another fiasco in the registrarship business, as that would then lead to even the last player closing shop. Such organisations take years to build, and new entrants are missing as it is not considered a lucrative nor a steady business."

According to market observers, with the SEBI directives to Karvy customers to shift their DP accounts, more than 50,000 retail investors would be left high and dry in the interior parts of Eastern India. At present, Karvy DP is the sole entity operating in this part of the country, they pointed out.

Mr Haldea was of the view that, "until the time the final order is passed, Karvy may be prohibited from accepting new accounts, but to require shifting of their (customers') accounts to other DPs is rather harsh. One, the time frame of 15 days is too small for the gigantic number of accounts. Two, this would literally lead to closing down of the business, once and for all and would be irreversible in case in the final order, Karvy is not found guilty or guilty enough to merit this kind of harsh action."

According to him, "The key issue here is that an order that is for the interest of investors should not become one for their huge inconvenience. If connivance of the top management/owners is established, then a very harsh action, including closing down of their DP business, is warranted. However, for lack of diligence, there may be again a huge monetary penalty."

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