Electronic holding of all investments in a single demat account will be a revolutionary change in the way people manage investments, says GV Nageswara Rao, MD and CEO of the country’s largest depository, National Securities Depository (NSDL). In an interview to BusinessLine , he talks on how the single demat account system will be implemented, the benefits of a corporate bond data base and why equity investments need to be rewarded by the government. Excerpts:

What prospects do you see for investments in the Indian market?

India was one of the best performing markets in the world in the last one year. After growing at 9 per cent levels, now for two years it has been growing at below 5 per cent. That was seen as the bottoming out. Growth is returning to the economy, that’s the most widespread expectation and has been proven by data as well. Simultaneously, the relative attractiveness of many of the emerging markets, such as Brazil and Russia, has deteriorated. After the QE taper, even though the overall emerging market flows have reduced, inflows into domestic markets have increased. So, the scenario looks optimistic.

You took over at NSDL in 2013. Tell us about the two or three key things you wanted to get done and why?

The optimistic market environment has lead to substantial inflows in our business. New account opening has increased this year at 28 per cent compared with last year. This was one of the best account opening growth rates we’ve seen in many years now and investors are coming back to the markets. There has been a 45 per cent increase in transaction volumes compared with last year. That’s a very optimistic sign for us from business angle.

What about the SEBI requirement that equity shares be compulsorily dematerialised? Is that driving the new accounts trend?

There is a certain number of physical shares in the market. These are in the hands of very inactive investors. In order to sell, these have to be in demat form. Although in theory stock exchanges offer what is called the limited physical segment where you can potentially deliver physical shares, for the last ten years there has been no trading in that segment. The only investors who continue to hold physical shares are inactive investors — those who have locked their share (certificates) in a suitcase and have forgotten about it, or where there are disputes around a share.

And the other major changes at NSDL?

One of the big changes is in the new foreign portfolio investor regime. Earlier, in the FII regime, SEBI granted recognition to foreign investors after doing diligence. Now, the market regulator has delegated this responsibility to all depository participants, called designated depository participants. For them, we have set up an online portal so any of our participants who does due diligence on an investor can now grant registration to the FPI. All it needs to do is give us certain details of the investor on the portal and we generate a registration certificate and a registration number instantaneously.

The demat account will be a single place to hold all financial investments. Will you be able to determine the value of all the investments that you hold?

Our proposition is that electronic holding of all investments in one account will bring revolutionary change in the way people manage investments.

It’s a large project and my own expectation is that everything will take two to three years to fall into place. It will be a phased approach, with each phase bringing in a new asset class. First thing that will be included is mutual funds.

So, SEBI has already announced there will be consolidated statement for mutual and demat accounts by February 2015. We are working on that.

For many standalone DPs, the cost of compliance is huge. Are you talking to SEBI on this issue? There has been a plateauing in the number of DPs at the 850-mark.

To my mind, technology can address some of these (cost) issues. For example, physical delivery instruction slips increased operating and compliance costs. But this is not so with electronic instructions. So, we are telling our DPs to shift to electronic instructions.

The time has come now to promote electronic instructions in demat as well. We are providing enabling infrastructure for DPs to do this.

RGESS (Rajiv Gandhi Equity Savings Scheme) has proved to be an area of concern for you. What do you think needs to be done to get this going?

The conditions on RGESS are very restrictive.

Our learning is that this hasn’t seen much uptake from consumers.

There’s a need to revise this. Broadly, in any account, the client should be able to invest a certain amount of money every year. And each additional investment should be eligible for deduction, either in RGESS or under 80C along with other deductions, in order to promote individual investments.

Related Topics
comment COMMENT NOW