FM lauds efforts to push India’s markets to T+1 settlement

Finance Minister Nirmala Sitharaman on Saturday lauded efforts by former SEBI chairman Ajay Tyagi to push India’s markets to T+1 settlement.

Speaking at an event in Mumbai, Sitharaman said, “T+1 is the right thing. That kind of settlement time is the magic word you need for great attraction to small investors.” After India implemented the T+1 settlement cycle for stock markets, regulators in the US are now contemplating the same.

Pathbreaker

Earlier, trades in India would be settled in two days after they were executed and money came into the seller’s account only on the third day. But now, trades are settled in 24 hours and those selling the stocks receive money in their account the next day, which is known as T+1 settlement. Tyagi showed his firmness in implementing the short settlement cycle despite strong opposition from foreign portfolio investors (FPIs).

T+1 was implemented in India from February in a phased manner where in the top 100 stocks were first to be put under the system and the rest would follow in regular intervals. Tyagi demitted office after T+1 was implemented. FPIs were opposed to it on the reasoning that money transfers and trade requests coming from different time zones would be a deterrent.

“I have been assured that it is coming in progressively. This is the first benefit we should give retail investors,” said Sitharaman.

Retail investors

“Indian retail investors have played a key role especially during the last two years; they have shown the world what they can do by standing up and becoming shock absorbers unlike FPIs,” she further said.

Sitharaman, who was sharing the dais with current SEBI chief, Madhabi Puri Buch, also expressed her satisfaction that demat accounts in India were growing at 26 lakh per month this year, compared to around 7 lakh nearly three years ago. “From an average of 4 lakh new demat accounts opened every month in 2019-20, it tripled to 12 lakh per month in 2020-21 and has further increased to around 26 lakh per month in 2021-22,” she said.

Both Sitharaman and Buch stressed on the need for increased use of distributed ledger technology (DLT) for record keeping in Indian financial markets. Sitharaman said DLT would be a great achievement in the era of web-3 and 5G in India, which is likely to be implemented from August.

“Many countries have taken to the technology of DLT to achieve financial inclusion. DLT can help us in bulk financial transactions and cross border transactions,” Sitharaman said. 

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