Regulator Sebi plans to relax its norms for direct registration of foreign investors and also fast-track the listing process for companies, including startups, as part of efforts to make the Indian stock market more attractive for domestic and overseas investments. The regulator is also looking to make the corporate governance norms more robust, including by encouraging greater say for independent directors and by making their removal from boards more inclusive in terms of shareholders’ approval. Another area of concern is ‘favouritism’ and family connections in appointment of independent and non-executive directors. These would be among several reform measures to be considered by the board of the capital market regulator in its meeting this week, a top official said.
The foreign portfolio investors from the jurisdictions complying with the global regulatory standards may get direct access to Indian markets without any procedural delay. The aim is also to discourage investments through participatory notes, which have been long considered to have been misused for laundering of black money.
The Sebi board is also likely to approve a proposed measure for making the P-Note route more expensive by levying a regulatory fee and fully stop such investments for speculative purposes. Among other proposals to be considered by the Securities and Exchange Board of India, the listing time could be lowered to four days, from six days at present, post the Initial Public Offer (IPO). Some relaxations could be introduced for other forms of share sales also, while new norms may be unveiled for shortening the size of public offer documents.
Sebi is also considering allowing the alternative investment funds to invest in commodity derivatives, while startups may be allowed to list with relaxed norms for their existing shareholders. Sebi has already set up a high level panel, under the chairmanship of veteran banker Uday Kotak, to suggest changes to corporate governance norms, including those pertaining to related party transactions, auditing and effectiveness of board evaluation practices. Against the backdrop of recent instances of boardroom battles involving large corporates, Sebi is looking to revamp the norms and the matter is expected to be discussed at this week’s board meeting.
Strengthening corporate governance practice is a focus area for the regulator, with Sebi chairman Ajay Tyagi, recently, saying “independent directors are not independent”. Sources said the regulator is keen on having stricter norms for independent directors, including with respect to their appointment, removal and larger responsibility as part of a company’s board. Currently, an independent director can be removed by way of an ordinary resolution — which requires the approval of at least 50 per cent shareholders of a particular company. However, when it comes to re-appointment of independent directors, the firm concerned has to move a special resolution under which nod from 75 per cent or more shareholders is required.
According to sources, Sebi wants to make it special resolution mandatory for removal of an independent director as such a provision will reduce the arbitrariness of promoters in deciding upon the ouster of such directors. Besides, stringent disclosure requirements for independent directors, including at the time of their appointments, are being looked at, sources said. The panel has been asked to make recommendations on ensuring independence in spirit of independent directors and their active participation in functioning of the company. Besides, measures to address issues faced by investors on participation in general meetings and ways for improving effectiveness of board evaluation practices will be suggested by the committee.
Apart from Kotak, who is the chairman of Kotak Mahindra Bank, other members include HDFC CEO Keki Mistry, Wipro chief strategic officer Rishad Premji, L&T Whole Time Director R Shankar Raman and BSE CEO Ashishkumar Chauhan. In April, Tyagi had said there were too many lacunae with respect to the concept of independent directors with many having “no commitment to any cause”. “I must admit, I have no solutions on what should be done but it will be anyone’s case that existing system has lot of lacunae,” he had said. Some independent directors are appointed at the mercy of promoters “(with) no prescribed qualifications or procedures, favouritism, (many are from) closed clubs (such as) only those people being in all boards, no commitment to any cause,” he had said.
Earlier this year, the regulator came out with detailed corporate governance norms for listed companies that provide for stricter disclosures and protection of investor rights, including equitable treatment for minority and foreign shareholders. The new rules, which would be effective from October 1, require companies to get shareholders’ approval for related party transactions, establish whistle-blower mechanism, elaborate disclosures on pay packages and have at least one woman director on their boards