Primary allotments still stuck in a paper trail

Updated: Nov 22 2005, 05:30am hrs
A 78 year-old man from Delhi, Harjinder Singh Gambhir, sent me an e-mail a few days back. He had invested in ONGCs mega public issue in March last year. Yes, the same issue that witnessed serious errors in the allotment process. Shares were wrongly credited into thousands of accounts, owing to a mistake by the share registrar in handing over the correct CD to the depositories.

The then disinvestment minister Arun Shourie and then Sebi chairman GN Bajpai had promised action and announced confidently after a few days that all investors had been protected. Clearly, they were not aware of the situation on the ground.

But first, this senior citizens story. He applied on March 6, 2004. And till date has not got his shares. Nor the refund. He has recently been told, through a friend who approached the registrar, that 20 shares have been allotted to him and because he gave an incorrect demat account number, he has been given physical shares. Mr Gambhir tells me he has not even got the physical shares!

In effect, he paid money around two years ago, but is yet to get the product he paid for. Can you imagine this happening if you were to buy a television, or a laptop or a car And can you imagine the opportunity loss to an investor like Mr Gambhir, considering the ONGC share has moved from Rs 700 to over Rs 1,000 today Who will compensate him

Every day, I receive at least 10 emails from investors who are awaiting refund on their share applications. Each story is similar to that of Mr Gambhir although the wait has been shorter. Nevertheless, the damage is the same. Especially in a bull run, when investors could have booked profits. Almost invariably, the response one gets from the registrar (not including the ONGC case, which is one of gross neglect gone unpunished) is this: The investor gave a wrong address. The investor has a bad handwriting! The investor changed his address and did not inform. The investor gave the wrong demat account number. It got lost in post!.....The investor is to blame.

Awaiting refund on share applications is a huge redressal problem
Why cannot the entire issue allotment process be made free from paper
Registrars and printers are the only ones benefiting from Sebis inaction
If, for a moment, one were to believe the registrars, the reason for the problem is this. Investors have to still fill reams and reams of paper while applying for a public issue. They have to give all basic details and often write these again and again. And that is where errors creep in, both in writing the details and then later, while making an entry of these in a database at the registrars end. And finally, at the end of the Indian postal department.

What I find amazing is that while our secondary equity markets have moved so quickly to a demat or paperless mode, it is the opposite when it comes to the primary market. When shares have to be issued only in demat mode, why cannot the entire process of issue allotment be made free from paper After all, my depository participant has details of my address, bank account, PAN, etc. I should just need to go to my depository participant and say, I want to apply for shares in the xyz companys public issue. Since the depositories, registrars and the DPs are all connected electronically to each other, information of allotment, refund and eventual payment into an investors account could all be done without a drop of ink. No question then of wrong address, bad handwriting, wrong demat account, lost in post, etc. And yet, this has not been done.

I can only explain this as due to a powerful lobby that is derailing the process. The only people who stand to benefit from the primary markets remaining in the paper mode are the registrars (who do all the data entry) and the printers (who print the crores of application forms).

Why the current Sebi chairman M Damodaran is not pushing for this reform is difficult to imagine, considering he is known to be adept at striking at problems in a system and is open to change. This is something only he can answer. But if Indian retail investors are to be brought into the stock markets and, more important, kept there, they need to be freed from the trauma they face while applying for public issues. Over to you, Mr Damodaran.

The writer is editor, consumer affairs, CNBC-TV18