‘Procedural issues are holding back QFIs’

K. Raghavendra Rao
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Mr Ashok Motwani, MD & CEO, Stock Holding Corporation of India Ltd
Mr Ashok Motwani, MD & CEO, Stock Holding Corporation of India Ltd

Stock Holding Corp’s MD says the firm handles 5 crore scrips during peak trading seasons

As the head of India’s largest custodian, Mr Ashok Motwani MD & CEO, Stock Holding Corporation of India Ltd (SHCIL), has a pivotal role to play in the capital market.

Custodians perform the clearing and settlement functions for institutions and high networth individuals. They handle huge volumes of transactions and settle trades independent of broker platforms. They are also custodians of securities in demat forms for their clients.

Leading banks and financial institutions are the promoters of SHCIL. As of May, 2012, its assets under custody were Rs 7.6 lakh crore.

The soft-spoken honcho spoke to Business Line on issues concerning custodial services and how the capital market back office operations had evolved since the days of physical settlement of shares.

How has the role of the custodian changed from the era of physical shares to dematerialised shares?

Earlier everything had to be handled in physical format. Transfer deeds had to be executed in favour of clients duly stamped and kept in safe custody. Tracking corporate action was the key.

Settlement cycles were longer at Trade plus 15 days (T+15) for bonds, debt, G-Sec and shares.

Now everything is online but the complexities have increased. Today it is rolling settlement and cycles are shorter from T+zero to T + two. The numbers of stocks have also gone up.

We were computerised from day one and used to handle about five crore scrips at peak levels.

What is holding QFIs (qualified foreign investors) from coming to India?

There are some issues that are procedural and related to KYC norms and taxation. Once done, a lot of QFIs will come, given the low borrowing cost overseas and India being an attractive destination.

We are in the process of tying up with a foreign bank that is not registered as a qualified depository participant with SEBI. The remittance part will be taken care of by them and we will do the investment.

What’s the learning from the ONGC offer-for-sale issue?

It was the first issue and a mega-sized one of about Rs 14,000 crore. The timeline was tight as it had to be completed in one day. When such an issue is oversubscribed, about Rs 40,000- 50,000 crore moves from investors to the exchanges and wherever we were the custodians, through us.

One had to collate bids, announce pricing; it was similar to a slog over situation in a T-20 match. As usual, a large number of subscriptions came in at the last minute. This compounded the problem as it resulted in bunching of orders.

Everyone had to coordinate and the issue taught us everything related to OFS in one go.

Normal transactions are settled on T+2, but, in this case, it had to done by evening.

Systems for this were developed by the exchanges for the first time. Brokers were punching in huge orders and custodians were confirming them. It was a mammoth task and glitches were inevitable.

Had the first issue been of smaller size it would have been different. The revised SEBI guidelines take care of all problems.

Margins in your business are under constant threat? How are you tackling this?

We are not just a custodian. Had we not been into other businesses such as broking, third party distribution and e-stamping, our profits would have been under severe stress. This is because income from the custody business varies directly with assets under custody, as they go up and down due to market action.

Custodial services are our number one business. Next comes e-stamping. We also have good treasury income. Broking and depository participant services are also available through our 250 branches across 184 locations. We have started online broking and are also planning to offer the services on mobile phones.

How many employees do you plan to recruit this year?

We have 1,200 on our rolls. We need another 200- 300 people for e-stamping services as we expect more States to roll out e-stamping. As of now, we cover 12 States providing these services. We have tied up with 14 banks which are our authorised collection centres.

You had a one-time extraordinary income of Rs 295 crore in FY10. How?

We were one of the founder promoters of the National Stock Exchange (NSE). Our shareholding was in excess of five per cent. In FY10, we divested two per cent for Rs 295 crore to comply with extant regulations. We still hold five per cent which is now valued at about Rs 1,000 crore.

What is the news on your insurance depository front?

We have been short-listed by the IRDA and have received an in-principle approval. The final approval is awaited. Once it comes we will commence operations as an insurance depository to keep life insurance policies of 10 -15 year tenor in dematerialised form. Our systems are in place for rollout.

(This article was published on July 29, 2012)
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