Over Rs200 crore of fund commissions of banks held up for non-compliance with KYC norms

Fund houses have been forced to hold back more than Rs200 crore of commissions for non-disclosure of KYC details as per the SEBI mandate

Some leading private sector banks, including foreign banks, are struggling to comply with the market watchdog Securities and Exchange Board of India’s (SEBI) circular which mandates banks and national distributors to submit know your client (KYC) details to fund houses. According to souces in the fund industry, some banks were reluctant to submit KYC data to fund houses. When fund houses reported this to the market regulator, SEBI apparently asked the houses not to release their commissions until the banks submitted KYC data to the fund houses.

This has led to a huge piling up of commission with asset management companies (AMCs) that was supposed to be paid to banks. According to industry estimates, more than Rs200 crore in commission fee is yet to be released by fund houses.
“Nobody has completely submitted the documents. Whatever data we have got, we have released commission against that. A lot of data comes from banks like HDFC Bank, Citibank and ICICI Bank. The work is in progress. SEBI is correct in forcing the holding back of commissions as funds should know the source of investments, as per the KYC norms,” said a top official from a leading fund house.

In December 2009, SEBI had mandated all AMCs to obtain KYC documents from all bank distributors and hold the commission of distributors back unless they submit the correct details. Banks that are national distributors were holding back citing operational inconvenience and business secrecy. SEBI hit back by asking funds to hold back commissions to force the banks to reveal the KYC data.
There is another angle to all this. According to the rules of the Reserve Bank of India, if an ‘income receivable’ for banks is due for more than 90 days it is considered ‘doubtful debt’. According to sources, banks do not want to show the commssions as doubtful.

The KYC issue exposes another flaw in the business model of fund houses. Many fund houses—mainly the foreign ones—have been managing money of retail customers without knowing who these customers are. They have been relying on foreign and other large private banks which hold the KYC data. This is another step by the regulator that would force fund houses to be truly customer-oriented.

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COMMENTS

AJ

7 years ago

This is a good move from SEBI to ensure accountability at both the bank and AMC levels.

B V Kudtarkar

7 years ago

Mr.Patil, sebi not asking document from you but from your bank -broker ,who is not ready togive. you need not worry becasue your dividend redemption will not be kept on hold but bank and broker's commission is put on hold which doesm;t concern you.

K B Patil

7 years ago

When I open an account with a broker, I submit all the details as required under KYC. In fact, the broker's representative has personally collected all the details after meeting me. So, when you are again asked to submit the same set of documents, it is enough to annoy you. My simple request to SEBI is, when investors have opened trading accounts with large brokerages and after satisfying all the KYC conditions, they should not be made to go through with this procedure again.

B V Kudtarkar

7 years ago

Sebi is on right path of action as one can not know if bank staff in connivance with investor may be investing illgotten money through benami account as there is no kyc done by bank.When we go to open bank account we are seen as doubtful investor by asking lot of documents b ut here thousands of crores are invested without kyc.
Great work by Mr.Bhave and team.
when commission is abolished from 1st august than how rs.200 crore is due to bank?

santhana

7 years ago

Thanks to the foreign banks,we have Swiss banking in India with their secrecy laws of the clients and source of their funds. Most of these money would be ill gotten and untaxed. May be even belonging to Dubai based gangs!! SEBI had rightly asked the fund houses to hold the commissions to the banks. After one year the unpaid commissions should be credited to the Govt. That would be some justice.

Chetan Bhatia

7 years ago

I suppose SEBI is now getting its act right after a longtime. It has hit the tip of the iceberg, the real reason for which it needed to come out with the No load thing. However at the cost of IFA's. A little more digging and .......

Jaypee Infratech goes ballistic with pre-IPO hype

The mass media is flooded with news about the group’s bid for Federa airport in Dholera special investment region (SIR), completion of the Yamuna Expressway project ahead of schedule and its Rs70,000-crore ambitious expansion plans

Companies go all out to tout their various planned business ventures just before an initial public offering (IPO). Jaypee Infratech which hits the market on 29 April has gone on a media blitzkrieg.

Here’s a sample of what the group says that it has in the pipeline, according to various media reports. It has been reported that Jaypee Infratech is proposing to bid to develop the Federa airport in Dholera special investment region (SIR) in Gujarat.

There are also reports that the Jaypee group will complete its current Yamuna Expressway project in the year ending 2011, instead of the projected deadline of 2013 while another report talks of Jaypee Group’s plan to invest Rs70,000 crore in the 1,047-km Ganga Expressway within the next five years.

Jaypee Infratech will use approximately Rs3,210.66 crore in the financial year 2010-11 to part-finance its Rs9739.29-crore Yamuna Expressway and integrated township project. The Adani group had backed out of this bid last month.

"Around Rs80 crore worth (of) infrastructure tenders are to be released for the proposed international airport at Federa coming up near Navagam village near Dholera special investment region (SIR). We are interested in entering the bidding,” Manoj Gaur, executive chairman at Jaiprakash Associates Ltd (JAL), a Jaypee group company, was quoted as saying in the Business Standard.

Some of the write-ups that appeared just a few days back in various newspapers include headlines like: ‘Our group’s philosophy is to reward shareholders: Jaypee Group’; ‘Yamuna Expressway to be opened in ’11: Jaypee’; ‘Jaypee Group to bid for Federa airport’s infra projects’).

The sole business of Jaypee Infratech is development of the Yamuna Expressway Project—to operate and maintain it for 36 years.

The company recorded a net profit of Rs266.73 crore and a net loss of Rs11.36 crore in FY09 and FY08 against a total income of Rs556.25 crore and Rs70.66 lakh respectively.

Infrastructure companies like IRB Infrastructure Developers Ltd and IL&FS Transportation Networks Ltd carry a P/E of 163.20 and 169.7 as on 12 April 2010 respectively while Jaypee Infratech’s P/E is 55.36.

The issue opens on 29 April 2010 and closes on 4 May 2010 and plans to raise Rs1,650 crore at a price band of Rs102-Rs117. Incorporated in 2007, Jaypee Infratech is part of the Jaypee Group which was granted concession from YEA (Yamuna Expressway Authority) to develop, operate and maintain the Yamuna Expressway in Uttar Pradesh, connecting Noida and Agra. The concession also provides for the right to develop 25 million square metres of land along the Yamuna Expressway at five locations for residential, commercial, amusement, industrial and institutional purposes.

There are 123 cases filed against Jaypee Group companies including 100 land dispute cases and 936 cases are pending against Jaiprakash Associates Ltd in various courts.

The lead book-running managers are Morgan Stanley, DSP Merrill Lynch, Axis Bank, Enam, ICICI Securities, IDFC Capital, JM Financial, Kotak Mahindra Capital, and SBI Capital.

Rating agencies ICRA and CARE have assigned ‘IPO Grade 3’ to the offer. 

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COMMENTS

R Balakrishnan

7 years ago

Looks like a cheap stock! I am sure it will get cheaper...

Currency derivatives volumes may outstrip equity markets soon

Average daily trading volumes in the Indian currency market have shown a significant jump; they may eventually outgrow volumes in equity derivatives

A dramatic shift is currently underway in the financial market scene in India. The currency futures segment, which was only introduced two years ago, is rapidly catching up with the stock futures segment in Indian stock exchanges.

This is being played out even as the two fiercest rivals in this segment, the National Stock Exchange (NSE) and the MCX-SX, have been going hammer and tongs at each other in a bid to corner a larger share of the currency derivatives pie.

After the Reserve Bank of India (RBI) permitted trading in the currency derivatives segment through the exchanges in India, the average daily trading volumes in the Indian currency market (only exchange traded currency derivatives and excluding the OTC market operated only by the banks in India) have been constantly growing.

Over the past three months alone, average daily volumes in currency futures have surged 37% on both MCX-SX and NSE. Comparatively, the equity derivatives segment has been stagnant for the past few months. Volumes on the NSE have risen marginally (5.4%) since January this year. In fact, the NSE has witnessed a slight decline in average daily turnover from Rs78,437 crore in the month of January to Rs74,674 crore in the month of March. Considering both cash and derivatives segment, the average daily turnover touched Rs88,304 crore in March. Already, the daily traded volumes on the currency derivatives space have touched Rs35,000 crore.

Pramit Brahmbhatt, CEO, Alpari India, a provider of online forex services, said, “The way (the) currency market is growing, it won’t be surprising if it overtakes the equity market in India by 2012. In the days to come, trading in currencies will dominate commodities and equities in India also, as is the case in major developed economies abroad. It was just about a year-and-a-half when trading in currency futures of Dollar-INR was started and on the last trading day of February 2010, the daily turnover of exchange traded currency derivatives was more than Rs36,000 crore, and even exceeded the daily turnover of the commodity market.”

As far as the exchange-traded currency derivatives market is concerned, there was a 30% jump in trading in less than a month’s time after introduction of three new currency futures. The launch of contracts in the new currency pairs of euro-rupee, pound-rupee and yen-rupee in February have contributed to the growth of this segment.

With the RBI announcing its intention to introduce plain vanilla options in the dollar-rupee pair, currency derivatives will get a further boost as it becomes more popular as an investment alternative.

Interestingly, the MCX-SX has recently overtaken NSE as the largest player in this prestigious business segment, despite being allowed to enter the field much later. MCX-SX's market share has averaged 56% since February, outshining its much larger and more resourceful rival by a sound margin. For the last three months, while NSE has managed average daily volumes of 33,03,908, the MCX-SX has shone brightly with volumes touching 38,58,460 in the same period. Prior to February, both exchanges were almost at par with each other. Obviously, MCX-SX’s success has not gone down too well with the NSE, which has a monopoly position in the equity derivatives segment. Not one to take things lying down, the NSE waived the transaction fee on currency derivatives. This waiver meant that MCX-SX could also not charge the fee from its members. Incensed, the MCX-SX filed a complaint with the Competition Commission of India (CCI), which ordered an investigation into the alleged misuse of dominant position by NSE.

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COMMENTS

Shatilal Hajeri

7 years ago

Any thing new, people are always fascinated. I am afraid many traders willburn thier fingures in such deals.

There is a need to educate the investors about the risks involved in such trades.

ankita

7 years ago

very good article

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