Though the demat system in its present form has served the interest of large investors, it now requires improvements to make it user-friendly for the retail investors and responsive to the changing profile of a new class of investors
The system of dematerialization of shares (demat accounts) has certainly helped to improve the stock market activity in our country. The considerable expansion in daily turnover in both the stock exchanges is a testimony of its utility to the investors. There are at present about 20 million demat accounts with both the central depositories, namely NSDL and CDSL together, which is mainly due to the regulatory requirement to compulsorily deal in dematerialized form if you want to transact through the recognized stock exchanges.
The system of demat accounts, introduced in 1996, has been really a boon to the large-value investors, foreign institutional investors (FIIs), high net-worth individuals (HNIs), promoters of companies and of course to the large number of market intermediaries who transact in the stock market on a daily basis and earn millions through their stock market dealings. They are the biggest beneficiaries of the stock market reforms since the introduction of the depository system in our country and because of this change it is a real ecstasy for these millionaires to dabble in the stock market today.
But the agony of the small individual investor, who rarely buys and sells in the stock market, is only to be experienced to be believed. The small investors, in fact, pay through the nose for doing a transaction in the stock market, as they have now to pay umpteen charges, starting from brokerage to demat charges, account maintenance charges, DPs charges, bank charges, etc, with multiple taxes like service tax, stamp duty, security transaction tax, etc.
The finance minister (FM) has in the recent Budget proposed to introduce the Rajiv Gandhi Equity Savings Scheme offering tax incentives to retail investors to further improve the depth of the domestic capital market. (Read: Rajiv Gandhi Equity Savings Scheme – How to make the best of a good or bad bargain) Following this announcement, the Securities and Exchange Board of India (SEBI) is exploring the possibility of introducing no-frills demat accounts, with the objective to encourage more investors to take advantage of the tax benefit offered under the scheme. As per the reports, there are about 15 million permanent account number (PAN) card holders with an income between Rs2 lakh and Rs10 lakh, who are eligible to avail the benefit of the new scheme proposed by the government.
However, apart from the hassles of involved, the cost of opening a demat account, maintaining the account and making transactions in the account are so prohibitive, that unless you invest a large amount in the stock market and make enough profits through constant churning of the portfolio, it is not worth the trouble of maintaining a demat account. With the globalization of the markets, there is wide volatility in the prices of shares, rampant mis-selling, wealth managers turning fraudsters and a poor grievance redressal mechanism have all made the small investors wary of dealing in stock markets. It is because of these uncertainties; the interest of the ordinary middle-class in the stock market has been dwindling for the last several years. To reverse this trend, SEBI and the government should really work towards total reformation of the systems and procedures and make the whole exercise simple, cost-effective, readily accessible and more importantly safe and trust worthy.
To achieve this objective, here are a few suggestions for the consideration of FM and SEBI to start working on the changes required to be put into operation while introducing the Rajiv Gandhi Equity Saving Scheme.
The biggest problem with the present system of demat accounts is that there is no two way communication between the depositories and the demat account holders, who have to entirely rely upon the half-baked knowledge of the staff of DPs for all matters relating to demat accounts. The depositories, which are invisible to the account holders at present, have to come out of their shell to educate the investors and be proactive to meet the expectations of the investor class, which alone can help to improve the investor population in our country.
The central government and SEBI should work in unison to achieve this goal of simplifying the working procedure of the entire capital market operations and bring down the cost of operations considerably to encourage the common man to enter the capital market with confidence and courage of conviction.
(The author is a banking & financial analyst. He writes for Moneylife under a pen-name ‘Gurpur’)
Social activists including Aruna Roy, Nikhil Dey, Prashant Bhusan, Jayati Ghosh, and others have urged the UPA government to change the management and liquidate personal assets of Kingfisher Airlines chairman to save the carrier
Eminent social activists have once again hit out at Kingfisher Airlines. In a recently released statement by activists Aruna Roy, who is also member of National Advisory Council (NAC), and Nikhil Dey, belonging to the Mazdoor Kisan Shakti Sangathan (MKSS), have urged the government not to bail out the cash-strapped airline and called it a case of gross mismanagement. They have also requested the government to change airline’s management and liquidate the personal assets of its chairman Vijay Mallya. The statement is been endorsed by several concerned citizen and activists including Prashant Bhusan, Jayati Ghosh, Harsh Mander, EAS Sarma and Praful Biswas among others.
“The dire straits of the airline are tangible, however that cannot be a reason to change an entire policy for one airline. We reiterate our demand that the government not consider this unconscionable bailout which will reinforce the skewed allocation of limited resources between the social and other sectors; that the state must force a change of management, the personal assets of Mr Mallya must be liquidated and a comprehensive review of the aviation policy be initiated,” says the statement.
It may be recalled that earlier, on 27th February, Ms Roy had sent a letter to the prime minister objecting the possible bailout. (http://www.moneylife.in/article/activists-urge-pm-not-to-bailout-kingfisher-airlines-using-public-funds/23947.html)
Here is the statement -
“On 27th February 2012, Aruna Roy and several other concerned citizens wrote to the prime minister objecting to a potential bailout of Kingfisher Airlines at public expense. As this letter was circulated, it received several more endorsements.
The signatories include Nikhil Dey, Sucheta Dalal, Debashis Basu, Prashant Bhushan, Kapil Bajaj, Biraj Patnaik, Suman Sahai, Jayati Ghosh, Jagdeep Chokar, Deep Joshi, Kiran Bhatty, EAS Sarma, Anjali Bhardwaj, Puneeta Roy, Praful Bidwai, Sandeep Pandey, Arundhati Dhuru, Prashanto Sen, Subhash Chandra Agarwal, Trilochan Sastry, Harsh Mander, Vipul Mudgal, Angela Rangad, Tarun Bhartiya, Aheli Chowdhury, Shailesh Gandhi, Adity Mukherjee, Mridula Mukherjee, Ashok Singh, Vasant Godse, P Sethuraman, Sunil K Kalathil, Saiprakash Nayak, M L Gupta, Pradeep Nair, Wilfred D Silva, Ujval Parghi, Aparesh Chowdhury, Shailesh Saraf , Sachin Inamdar, Yash Treasurer, Nirav Sheth, Sanjay Shirodkar, Niranjan Bangera, Harshit Patel , Sunil Suryanarayan, Kekin Ashar, Dattatreya V Pant, Pratul Bhandari, Tushar Katira, Girish Landge, Vijaya Krishna Pondala, Ramanathan Srinivasan, R. Vijayaraghavan, Karan Varma, Pankaj, Sajit Vasudevan, Kshitij Hardas, Mr Shantilal Hajeri, Dolphy D'souza, Punit Upadhyay, Kumar Rajamani, Cynthia Fernandes, Manish Kamdar, Remzil Kulkarni,Amrish Kathane, Deepak Agrawal, Charul–Vinay, Sukumar Muralidharan, Krishnamurthy TS, Kanak Dixit, K Muralidharan, Arun Saxena, president, International Consumer Rights Protection Council (ICRPC), Nadeem Sheikh, Om Jajoo, Sushila Pursnani, Ashok Jain, Prakash Kundur, Veeresh Malik, Surendra Gupta, JP Sanghavi, Dattatreya V Pant, Akhil Katyal, Prabal Biswas, R Vijayaraghavan, Anil Mehetre, Jagan Mohan Rao Ganti, Sudhir Roplekar, Ashwin Tombat (Goa), Bipin Jhaveri, Ashish Gupta, Sameer Gala, Pawan Sharma Gopal, NGK & Associates Chartered Accountants, Adi Daruwalla and Ramesh Bumb.
The main cause for concern is the face that Kingfisher Airlines has a debt of over Rs7,000 crore and this money has been extended by a consortium of nationalised and public sector banks including SBI (Rs1,500 crore), the PNB (Rs750 crore) and IDBI (Rs700 crore). The airline has outstanding amounts due of Tax Deducted at Source (TDS) of Rs422.98 crore, service tax Rs10.48 crore and fringe benefit tax of Rs4.51 crore. All this amounts to a potential bad debt at public expense if the airline goes bankrupt.
The entry of private companies into the aircraft industry has actually enforced the economic model of competition. In this case, airfares cannot be raised at will; the business model, financial management, and operational efficiency determine success. The airline industry is not unprofitable per se and other airlines have managed to operate at a profit. The irregularities of Kingfisher supplier and salary payments point to gross mismanagement.
Current rules allow 49% FDI in Indian aviation companies, but do not permit foreign airlines to own stake in India’s carriers. The suggested policy change by the Department of Industrial Policy and Promotion (DIPP), of a 26% cap of foreign carriers holding stakes in Indian airlines is unacceptable. This ameliorative measure for Kingfisher Airlines of allowing foreign buyers to own a 26% stake, will not only allow foreign carriers to invest, but also give voting rights on the board. We call for a thorough and transparent analysis of the policy regarding airlines. Before allowing FDI we must first address the issues that have arisen from private capital such as flouting safety norms. Even more so, state-run airlines should also have a clear policy before there is any consideration of foreign investment in this sector.
The citizens had demanded that under the Indian Companies Act, the government should intervene and force a change of management. Further, under no circumstance must a bailout be given without Mr Mallya being forced to liquidate his personal assets. Most importantly, there should be a review of the airline policy in a clear and transparent manner.
Since the time of writing the letter there have been several developments. On 7th March International Air Transport Association (IATA) asked travel agents to immediately stop booking tickets on Kingfisher’s behalf for failure in settling dues since February. On the same day, Hindustan Petroleum Corporation (HPCL), Kingfisher’s biggest aviation fuel supplier, had stopped refuelling as there were outstanding fuel bills of Rs515-Rs520 crore. It, however, resumed oil supplies the next day after the airline agreed to pay for daily fuel off-take. There have also been statements issued by the government on the possibility of the license of Kingfisher Airlines being cancelled.
The dire straits of the airline are tangible, however, that cannot be a reason to change an entire policy for one airline. We reiterate our demand that the government not consider this unconscionable bailout which will reinforce the skewed allocation of limited resources between the social and other sectors; that the state must force a change of management, the personal assets of Mr Mallya must be liquidated and a comprehensive review of aviation policy be initiated.”