After successfully transforming physical share certificates into electronic mode, National Securities Depository Ltd (NSDL) now wants to explore new areas. Gagan Rai, MD & CEO of NSDL speaks exclusively with Bijith R of FE on diversification plans, progress on the current project being undertaken and the need for depositories to go beyond MoU’s and establish cross border connectivity.
What is the progress on PAN compliance as it has been made mandatory for securities market operation?
We have made tremendous progress on PAN compliance. Out of 9.9 million demat accounts that we have, only 5 lakh accounts are not PAN compliant, which means 95% is PAN compliant. Further the value of securities in these 5 lakh accounts is only Rs 8,000 crores compared to total value of Rs 45 lakh crore securities with NSDL. So, when we take the value of securities, only 0.2% is non-PAN compliant.
When we compare Rs 8,000 crore with Rs 45 lakh crore or 5 lakh accounts with 95 lakh accounts, it may seem like a negligible figure. But when we see it in a different perspective Rs 8,000 crore is a big amount. So how are you going to handle it and is there any proposal to shift the amount to consolidated funds of India.
As of now there is no such proposal. We don’t have the authority to touch a client’s account or make any transaction. It has to be done by the government or the regulator.
But as far as we are concerned, we are continuing with our best efforts. We are sending letters and e-mails to the account holders if the total value of securities is more than Rs 25 lakhs. We are giving news paper and TV advertisements.
Lot of brochures and posters have been displayed at the DPs branches. We have sent thousands of such letters.We are sure the amount of Rs 8,000 crore will also come down.
You have entered into memoranda of understanding (MoU) with many overseas depositories. Are you also looking for any strategic tie-up with overseas depositories?
We have MoUs with many international depository likeDepository Trust Company of USA, Eurpoean depository, Japanese, Taiwanese and Russian depository. Basically, these MoUs are intended for sharing information and knowledge between the two systems. This has immensely benefited us.
This trend will continue. But from here we should move on to the next level where we can really participate with each other in some venture. It means cross border connectivity between depositories where shares can be transferred from one depository to another.
This will be required when restrictions on overseas investment in capital markets are relaxed and investors in both countries starts buying and selling securities in each others market.
You are acting as the Central Record Keeping agency for maintaining pension accounts. What has been your experience so far?
We have been appointed as the central record keeping agency by PFRDA for holding pension accounts on behalf of government employees. So far we have a total of 5.83 lakh pension accounts and we are expecting the number to reach 10 lakh in another six months.
Now, with the government making this scheme available to all citizens of this country, we should see more number of people coming in. Some exemptions have been made available for investment under this scheme in the recent budget, which should also encourage more number of people to come an open account with us.
As the volume grows, will you reduce the maintenance charges for holding pension account?
We have agreed with PFRDA to reduce the charge as the volume grows. We as a depository have reduced our charges seven times in 13 years. And it has been our policy to reduce charges when the volume grow and pass the benefits to the clients. For CRA also, as soon as the account holders reach 10 lakh we would reduce their charges by 30%.
What is your progress on Tax Information Network (TIN) for nationwide tax related information?
Tax Information network is the project we undertook on behalf of CBDT and we have made good progress in this.
There was no requirement of annexure this time while filing I-T return but only TDS certificate. Why those annexure were not required is because those entries are already made in the system. The TIN system has simplified the filing of tax returns and procedures and now we are moving towards dematerialisation of TDS certificate.
First, we have dematerialised share certificates and now we are moving towards dematerialisation of TDS certificate. With dematerialisation, collection of TDS certificate from the employer will not be required because the entry will already be made. We have already started creating ledger accounts of the individuals for that purpose.
Which are the other areas you are looking at?
We have already implemented one project on behalf of National Association of Software and Services Companies (NASSCOM), where we stored the CVs of IT professionals in IT and IT enabled service companies. In terms of diversification, there is a talk of dematerialisation of LIC policies and automation of SEZ transactions.
Do you see any such opportunity in other countries?
There are some opportunities but we have not received any concrete proposals yet. It is possible to implement TIN project in developing nations. It will be the most important one. We are late starters in depository and pension funds as most countries in the world already have it. But TIN is an innovation and if any overseas government approaches us, we are ready to take it up.
How was your experience with the recent market meltdown? Was there any substantial reduction or withdrawal of accounts?
In fact, in FY 08 and FY 09 we have opened 41 lakh new demat accounts. But the progress in FY09 was a little slower when compared to FY08. It appears to me that in the current financial year we are back to our previous fast growth. In this year alone we may open 21 lakh new accounts. Lot of accounts also got closed either because of consolidation of accounts among the family or because of PAN compliance. For example, today we have 28,000 crore securities worth Rs 45 lakh crores in NSDL, which is more than 80% of the total dematerialised stock in the country. But last year there was less transaction due to slow down which came down by 35-40%.
You have taken a number of investor friendly measures in recent times
There have been a number of investor friendly measures. The latest being the mobile alert to all the account holders when there is a debit in the account. Similarly, there is also a SMS alert if there is a credit on account of an IPO or rights issue. Further, to avoid risk we have also made it mandatory for the depository participant (DP) to send transaction statement every month if there is a transaction and a statement of transaction every three months if there is no transaction. Additionally, what we are also sending statements of transactions from our main systems every month.
However, these investors are picked on a random basis as we have 9.9 million account holders. We can’t send to 9.9 million so we pick up 3,000 every month. If the investor finds any discrepancy in the system he can approach his DP or NSDL.