In sweeping changes to the way listed companies are governed in India, regulator Sebi today also asked them to follow an orderly succession planning, put in place whistle- blower policy for employees, have at least one woman director, get public shareholders' nod for related party transactions and carry out performance evaluation of all directors.
The new corporate governance norms were approved by Sebi board at a meeting held here today, wherein a long-term policy was also cleared for the Rs 9-trillion mutual fund industry while proposing tax benefits to the tune of Rs 50,000-2,00,000 for those investing in such products.
After the board meeting, Sebi Chairman U K Sinha said that the tax related proposals would be sent to the government for due consideration, while new corporate governance norms would become applicable for all listed companies with effect from October 1, 2014 pursuant to being incorporated in the listing agreement.
Sebi has been of the view that CEO salaries in some Indian firms have been higher than even their global counterparts and do not reflect true financial positions of the firms.
Sebi also made the KYC (Know Your Client) compliance easier for investors by allowing various kinds of intermediaries such as brokers and mutual funds to access the investor KYC details from the centralised KYC Registry Agency (KRA), rather than carrying out a fresh KYC process.
The new corporate governance norms also require greater oversight of and by independent directors, limits number of directorships of board members, prohibits award of stock options to independent directors and excludes 'nominee directors' from the definition of independent directors.
Besides, these proposals include expanded role of audit committee, greater disclosure of remuneration policies, mandatory constitution of nomination and remuneration committees chaired by an independent director.
For mutual funds, Sebi has asked them to make greater disclosure about group investments and voting rights.
The regulator has also sought to weed out non-serious players by increasing the minimum networth requirement for mutual funds from Rs 10 crore to Rs 50 crore, while they have been asked to contribute their own funds in form of 'seed capital' amounting of 1 per cent of amount raised from investors for their schemes.
Sebi also asked the government to allow Employees Provident Fund Organisation (EPFO) to invest up to 15 per cent of their corpus in equities and mutual funds.
Besides, the regulator wants that all Central Public Sector Enterprises (CPSEs) be permitted to invest their surplus funds in mutual fund schemes.
Sinha said that Sebi wants the government to provide similar tax treatment to all long-term investment instruments, including pension, insurance or long term mutual fund schemes.
Noting that mutual funds do not have a stable or clear cut place in the scheme of investment options, Sinha said that is one of the reasons "why retail investors are not very sure whether they should invest in mutual funds or not."
Through the first-ever long term policy for mutual funds, Sebi expects to help channelise household savings into these investment products.
The proposed tax benefits include creation of a long-term investment product, Mutual Fund Linked Retirement Plan, with tax incentive of Rs 50,000 under the existing IT Act.
Alternatively, Sebi wants the government to enhance the limit under Section 80-C of the Income Tax Act from Rs one lakh to Rs two lakh to help make various mutual fund schemes eligible for such tax benefits. Currently, this section allows for deduction of Rs one lakh from taxable income of a person.
There are about 45 fund houses present in the country with total assets worth over Rs nine lakh crore, but fund mobilisation has been tough in the past couple of years.
To reach the goal of financial inclusion, Sebi said, it will also work towards basics of capital markets and financial planning being introduced as core curriculum in schools and colleges, in addition to investor awareness campaigns through print and electronic media in all languages.