Stocks
Struggle for equity investors holding physical shares

Many investors, especially senior citizens who continue to hold shares in physical form are struggling to have them converted into dematerialised form or are finding it difficult to claim bonus shares and split shares when such corporate action happens. The numbers are huge.

 

More than 300 crore shares of the current Sensex companies are still held in physical form, according to a recent analysis by Moneylife. Most of these shares have been purchased decades ago before the Depository Act was passed and since the investors intended to hold them for long-term, they did not see any reason to pay for a demat account or the annual maintenance charges of depository participants. The decision was further dictated by the fact that the procedure to open a demat accounts remains expensive and cumbersome. For these investors, bonus shares or splits are issued in physical form. Investors often complain that the bonus or split shares are lost in transit after the companies claim to have mailed them. When that happens, the process of having duplicate share certificates issued is even more cumbersome as the investor has to a file police complaint along with a whole list of other documentation.
 

The switchover from physical to demat system has been fraught with a variety of problems.
 

CB Bhave, former chairman and managing director, National Securities Depository had acknowledged in 2007 that many have not converted their physical shares to demat saying, “There are a large number of investors who still own shares in physical form. Since they don’t intend to trade or sell, they don’t feel the need to enter the demat system.” In fact, every time investor groups complained about high demat charges, especially the annual maintenance costs, Mr Bhave used to point out that there is no need for people to dematerialise their shares if they did not intend to sell the shares in a hurry.
 

FAQs on Exit Route Scheme for Physical Shares by BSE
 

However, keeping shares in physical form is now leading to a series of problems. As of now companies are not allowed to issue physical shares except in case of bonus or split of shares, which need to be issued to those whose original holding continues to be in physical form. Investors complain that often these shares are lost in transit after the companies claim to have mailed them. When that happens, the process of having duplicate share certificates issued is even more cumbersome. The shareholder would have to send his request for issue of duplicate share certificate accompanied by, affidavit, indemnity bond, surety form, proof of income of the surety and receipted copy of police complaint reporting loss of share certificate and voucher copy of advertisement released in local newspapers regarding loss of share certificate. This is highly strenuous for senior citizens people and needs urgent simplification.
 

Investors suggest that the practice of companies issuing physical certificates for bonuses or splits should be curbed and the regulator should make it mandatory for companies to offer demat as an option before dispatching the physical shares. Investor groups across India have long demanded that companies, who have been the biggest beneficiaries of dematerialisation, must bear a part of the cost of dematerialisation, at least during the initial conversion.
 

Over 13 years after the Depository Act introduced paperless trading, the Securities and Exchange Board of India (SEBI) has discovered that hundreds of companies show discrepancies between their listed capital and actual capital (dematerialised + physical shares). The NSE and BSE have reported discrepancies in share capital reconciliation of 329 and 695 companies respectively for the quarter ending March 2012. As per reports submitted by the stock exchanges to the market regulator, some companies have failed to submit their quarterly audit report or have reported discrepancies in share capital reconciliation. Further, in some cases, the discrepancy is explainable whereas in some cases, the issuer is unable to provide justification for the discrepancy, reported PTI.
 

 What makes this scandalous is the fact that the discrepancy was first discovered in the DSQ Software case during the Ketan Parekh scam nearly 12 years ago. An investigation revealed that 1.30 crore shares of DSQ Software had not been listed on any stock exchange. Dalmia is alleged to have made false representation to the NSDL and fraudulently got the 1.30 crore shares dematerialised, showing them as fully paid and allotted by the company. (For more read:  DSQ Software Saga )
 

This formed the orders of the Mohan Gopal-Leeladhar committee of the SEBI board against NSDL, which was vigorously contested by Mr Bhave. However, the finance ministry went ahead and appointed Mr Bhave as SEBI chairman and the orders were controversially sought to be dismissed as “non est” (or void) until a Supreme Court order corrected the situation.
 

It now turns out that DSQ Software was not an outlier. The bland use of the word ‘reconciliation’ hides a more serious issue where the sanctity of a company’s capital, backed by its equity shares is not clear.
 

SEBI admits as much in a memorandum presented to its board. It says, “The non-reconciliation of share capital undermines the integrity of the market. In order to ensure protection of investors and market integrity, there is need to have measures in place to prevent issuer companies/promoters and issuer’s agents from introducing fraudulent shares in the market or borrowing against such shares or accessing banking system for loans, etc.”
 

Consequently, SEBI has finally woken up to the need to empower depositories to initiate penal action against companies that do not properly reconcile their demat and physical shares which exposes the equity market and investors to possible frauds.
 

Holding securities in demat form helps investors to get immediate transfer of securities. No stamp duty is payable on transfer of shares held in demat form and risks associated with physical certificates such as forged transfers, fake certificates and bad deliveries are avoided. In case of non cash corporate benefits like split of shares/bonus shares, the holders of shares in physical form must opt to get the shares in electronic form as these benefits are automatically credited to the demat account.
 

There are two entities—National Securities Depository and Central Depository Services—which hold securities of investors in electronic form through their registered depository participants. According to latest data available with SEBI, NSDL and CSDL together held 71,337 crore demat securities at the end of 2011-12 up by 24% over the previous fiscal.

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COMMENTS

G N GHOSH

4 years ago

IT is the utmost responsibility of SEBI and MINISTRY OF CORPORATE AFFAIRS to safeguard the interest of investors (senior or junior) and should take care of charges for the DEMAT a/cs. some suggestions--

1ST--AC OPENING CHARGES TO BE MINIMUM AND IT SHOULD BE A LIFE TIME AC WITH NO RENEWAL CHARGES.

2ND-- HOLDING CHARGES SHOULD BE WAIVED AND ONLY TRANSACTION CHARGES (STOCK IN AND OUT)SHOULD BE LEVIED.

3RD- THE COMPANIES WHO HAVE PHYSICAL SHARES IN MARKET SHOULD BEAR THE DEMAT COST OR GIVE SOME ONE TIME OFFER TO CONVERT THOSE SHARES INTO DEMAT FORM.

4TH- SHARE TRANSFER IN PHYSICAL
MODE MUST BE COMPULSORY IN DEMAT AC OF TRANSFEREE(BUYER OR BENEFICIARY),THE COMPANY SHOULD DIRECTLY CREDIT THE SHARES TO THE TRANSFEREE DEMAT A/C. IT WILL SAVE TIME,COST AND MENTAL TENSION.

Sunita Suhas Padwal

4 years ago

I offer voluntary service to those who wish to open demat a/c. Sunita 9870020060

sudip sheth

4 years ago

Appreciate MoneyLife raised this issue.

More than 8000-10000 listed companies, more than 75% non-demat.
Co's/DP's hold for more time to demat the shares, take various objections (very minor in nature or sanctity).

I may volunteer to help on this. You may contact to sell physical shares of companies with Name of co, no. of share with your phone nos. at [email protected]

REPLY

arun adalja

In Reply to sudip sheth 4 years ago

thanks but give some information about junk shares you want to buy?you want to buy on weight basis or piece basis?

G N GHOSH

In Reply to arun adalja 4 years ago

HE MAY WANT BUY IN MKT PRICE (ZERO)

sudip sheth

In Reply to arun adalja 4 years ago

Only GooD companies .

Piyush I Shah

4 years ago

One of the another reason for Non demate is people do not know change of Company Name. There are cases where company Name has been changed for more then One time. Even BSE/Nse web site don't have that company names under there New & Old Company list. Many time due to merger or demerger New company shares are issued & people are unaware for the same & don't know how to trace it out.

I myself have many compan's Annual Reports for which I am unaware for which company it has been alloted. Nothing has been mentioned in Annual Report Also. Thanks to SEBI's New Norms for Annual Report, People Can't see share capital issued by way of Bonus & or due to Merger or Aquisition of a company. Earlier company were mentioning these details Under Subscribed Share capital Head & in Note these things were available so one can check for which company they have received the New Company shares..!!

REPLY

G N GHOSH

In Reply to Piyush I Shah 4 years ago

MAKE A SEARCH IN GOOGLY , YOU MAY GET SOME RESULT.

arun adalja

In Reply to Piyush I Shah 4 years ago

visit bse india site and under corporate head change of name of company is given your problem can be solved.

arun adalja

4 years ago

many promotors are holding shares in a physical form and figure runs into alarge percentage.why sebi is not asking them?due to large holding in a physical exchanges are putting them t2t segments where volume is low so one cannot sell.i had some shares in demat form and company is not listed yet and due to this i am not able to close demat account.depositories cannot do anything about reconcilations of shares held in demat/physical with equity capital of company.whyy sebi is not doing?just passing the responsibity to others.

Gajanan Vijaykumar Yadav

4 years ago

Thanks for giving more attention on physical shares and senior citizen's plea for not having demat account.
Moneylife making good efforts for financial literacy for all.
Congrats.
Gajanan V. Yadav

Vaibhav Dhoka

4 years ago

The issue of dematerialisation is need of hour but there are heap of companies which are being traded in paise meaning cost of dematerialisation cannot be recovered for example Bhoruke Aluminium the cost of demat was about 40Rs and I can get about 52 Rs for sale. SEBI must mandatorily ask companies to bear copst of DEMAT for One year as investor can get it demat it will increase market volume too.It will be beneficail to all intermediarias.

ICICI Bank Q2 net profit jumps 30% to Rs1,956.11 crore

ICICI Bank's second quarter net profit rose due to 35% jump in net interest income and robust trading revenues, which grew to Rs172 crore from Rs21 crore, same period last year

 
Mumbai: ICICI Bank on Friday said its July- September quarter net profit jumped over 30% to a record Rs1,956.11 crore, driven by a rise in net interest income and strong growth in advances, reports PTI.
 
On a consolidated basis, net profit of the country's largest private sector bank for the second quarter ended 30th September, rose 20% to Rs2,390.37 crore from Rs1,991.68 crore a year ago.
 
ICICI Bank Managing Director and Chief Executive Chanda Kochhar attributed the robust numbers to the strong dividend income from its subsidiaries like insurance and broking, among others, apart from good retail-driven advances which pushed up the net interest income, which is the difference between interest paid and earned.
 
The rise in net profit was also helped by higher trading income, which rose to Rs172 crore in the quarter against a loss of Rs21 crore in the year ago period, she said.
 
ICICI Bank aims to grow its domestic loan book by around a fifth this fiscal year, led by consumer and working capital loans, and will be particularly cautious in unsecured retail lending and project finance, she said.
 
The year-on-year growth in retail advances was 14% compared 10.3% in the June quarter.
 
Net interest income soared 35% to Rs3,371 crore from Rs2,506 crore a year ago, while net interest margin rose to 3.00% from 2.61% YoY (year-on-year).
 
Non-interest income rose 17% to Rs2,043 crore from Rs1,740 crore. Cost-to-income ratio came down to 40.9% from 44.4% a year ago, Kochhar said.
 
Total provisions rose to Rs508 crore from Rs319 crore a year ago and Rs466 crore in the previous quarter.
 
However, analysts and market did not react positively to the numbers as after an initial response, the bank's stocks went down on BSE. ICICI Bank ended marginally lower at Rs1,078, while the benchmark Sensex also closed marginally down at 18,625.
 

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PNB Q2 net profit falls 11.6% to Rs1,065 crore on higher NPAs

Net NPAs of Punjab National Bank jumped to Rs7,883.43 crore from Rs2,088.51 crore in the year ago period while its NPA provisioning jumped 257% to Rs1,140 crore during the July-September quarter

New Delhi: State-owned Punjab National Bank (PNB) on Friday reported a 11.6% drop in net profit to Rs1,065 crore on account of higher provisioning for bad loans in the September quarter, disappointing investors as its shares fell about 7%, reports PTI.

 

The country's second largest state-run lender by assets had a net profit of Rs1,205 crore in the July-September quarter of 2011-12 fiscal.

 

"The results are not as per our expectation," PNB Chairman KR Kamath told reporters.

 

The net non-performing assets (NPAs) or bad loans as a percentage of total assets rose to 2.69% in the July-September quarter, from 0.84% during the same period a year ago.

 

"It is a reflection of what is happening in the economy. It is difficult to say whether the worst is over. It all depends on how economy behaves in next 3-6 months," he said.

 

In absolute term, the net NPA of the Delhi-based bank jumped to Rs7,883.43 crore in the July-September quarter, from Rs2,088.51 crore in the year ago period.

 

During the quarter the bank provisioning towards NPAs stood at Rs1,140 crore, a 257% jump over Rs319 crore provisioned in the September quarter of last fiscal.

 

"Higher provisioning is on account of higher NPA slippage. In some way it is a reflection of what is happening in the economy," Kamath said.

 

Shares of Punjab National Bank slipped sharply on the earnings as NPAs rose. PNB's shares ended at Rs748 on the BSE, down 7% from previous close.

 

Many PSU lenders have exposure to debt-laden firms like Kingfisher Airlines, Deccan Chronicle, the beleaguered state electricity boards and power and infrastructure projects.

 

"Whereever investments are not in a position to generate income, the government has to work to reduce bottlenecks else banks will have to take a hit in their books," Kamath said.

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