SEBI Asks NSE To Increase its IPF Corpus to Rs1,500 Crore from Rs594 Crore at Present
On Wednesday, the National Stock Exchange (NSE) admitted that the Securities and Exchange Board of India (SEBI) has directed the Exchange to conduct a review and to ascertain the adequacy of its investor protection fund (IPF), disclose the corpus on its website and update it on a monthly basis. 
 
SEBI has also asked NSE to increase the size of its IPF corpus to Rs1,500 crores in order to protect the interests of investors in the light of the recent broker defaults. The adequacy of the IPF corpus will be reviewed on a half-yearly basis and incremental contributions will be made to the IPF, if required. 
 
Accordingly, NSE has announced that it will enhance the total corpus to Rs1,200 crores by 26 November 2020. Further, Rs300 crore will be maintained as a reserve fund to be transferred to Investors Protection Fund Trust (IPFT) to meet any shortfall in IPF.
 
Moneylife has been pointing out that the National Stock Exchange (NSE), which churns out 85%-90% higher volumes, has a significantly smaller IPF of Rs594.12 crore compared to that of the Bombay Stock Exchange’s (BSE) Rs784.24 crore as on 31 March 2020. Annual profits and earnings of both BSE and NSE are way higher.
 
Subsequently, last month, SEBI Chairman Ajay Tyagi acknowledged that IPF with stock exchanges is 'woefully insufficient’ while speaking at the CII's financial market summit. He had said that the market regulator would take corrective measures soon. 
 
In the past couple of years, broker defaults have been on the rise and the IPF corpus would be grossly inadequate if every investor has to be paid. This is one of the main reasons both stock exchanges delay declaring brokers as defaulters, and have a cap of Rs25 lakh for each investor. Clients are allowed to claim money from stock exchanges only after a broker is officially declared a defaulter.
 
The statement from NSE says “In order to enhance the effectiveness of the Investor Protection Fund (IPF) and to improve the investor experience while making claims against defaulting Trading Members, SEBI has advised Exchange to operationalise a detailed Standard Operating Procedure (SOP).
 
"The SOP inter alia covers procedures and timelines for obtaining information from investors, processing investor claims, review of claims and timeline for declaration of a Trading Member as a defaulter. The SOP strengthens existing processes and includes electronic claim submission, pre-filled forms with information as available with the Exchange, claim processing policy, review by independent auditors etc. The SOP is being operationalized to significantly reduce the timelines for making payments to the investors in case of Trading Member defaults.”
 
NSE has stated that a detailed policy for evaluating investor claims is available on NSE's website. All eligible investor claims of a defaulting trading member will be paid as per the policy without any aggregate limit per trading member subject to a maximum of Rs25 lakh per client. 
 
Meanwhile, BSE in a similar statement, said that it had received a letter from SEBI, dated 13th November “to enhance the effectiveness of IPF as the regulator has decided to revamp the grievance redressal mechanism at stock exchanges with regard to clients of defaulting trading members.” The BSE, in its statement, added that SEBI had asked it to implement the prescribed Standard Operating Procedure (SOP) for processing of investors’ claims and a timeline for declaration of defaulters.
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    COMMENTS

    tillan2k

    1 week ago

    d not rein in brokers theyare all Govt Son in laws ( Jamai Rajas) like it was shown in Punjab , Haryana, Rajasthan . shows what constitutes political funding dalali pei Dalali

    Lakshmi Vilas Bank Brought Under Moratorium Till 16th December; RBI Proposes LVB's Merger with DBS Bank
    The union government has brought crisis-hit Lakshmi Vilas Bank (LVB) under moratorium till 16 December 2020. During this period, customers of LVB would be able to withdraw only Rs25,000 from their accounts. Separately, the Reserve Bank of India (RBI) while superseding board of directors of LVB, has appointed TN Manoharan, former non-executive chairman of Canara Bank as administrator. The RBI has also put in public domain a draft scheme for amalgamation of LVB with DBS Bank India Ltd (DBIL).

    The government has imposed the moratorium based on application submitted under section 45 of the Banking Regulation Act.

    According to the gazette notification issued on 17 November 2020, without the permission in writing of the RBI, Lakshmi Vilas Bank is barred from making any payment above Rs25,000 to its customers of savings, current and deposit accounts. "...if a depositor maintains more than one account in the same capacity and in the same right, the total amount payable from all the accounts together shall not exceed the limit indicated above."

    Further if a depositor is having dues payable to the bank in any manner, either as a borrower or surety, the amount payable to such depositor would be made after adjusting the relevant borrowable accounts, the notification says.

    However, the government has allowed withdrawal of up to Rs5 lakh or the actual balance in the account for medical treatment, cost of education and obligatory expenses for marriage or other ceremonies of the depositor or any person dependent upon him are allowed.

    In a statement, the RBI has said that it has superseded the board of directors of LVB and appointed Mr Manoharan as administrator. "...the Reserve Bank has, in consultation with central government, superseded the board of directors of Lakshmi Vilas Bank for a period of 30 days owing to serious deterioration in the financial position of the bank. This has been done to protect the depositors' interest," the central bank says.

    RBI has invited comments on its draft merger scheme between LVB and DBS Bank. DBIL is a wholly owned subsidiary of Singapore-based DBS Bank Ltd, which in turn is a subsidiary of Asia's leading financial services group, DBS Group Holdings Ltd.

    According to the draft proposal published by RBI, although the DBIL is well capitalised, it will bring in additional capital of Rs2,500 crore upfront, to support credit growth of the merged entity. "Owing to comfortable level of capital, the combined balance sheet of DBIL would remain healthy after the proposed amalgamation, with CRAR at 12.51% and CET-1 capital at 9.61%, without taking into account the infusion of additional capital," the central bank has said in a statement.

    Earlier in September, a section of shareholders of Lakshmi Vilas Bank ousted seven directors including managing director and chief executive officer (MD&CEO) S Sundar, who was appointed as the interim MD in January, as well as the statutory auditor and branch auditors, whose appointment is approved by the RBI.

    This has triggered fresh crisis at the beleaguered LVB, which has been in the middle of merger process with PE (private equity) fund-backed Clix Capital. LVB's influential shareholders are a bunch of non-banking finance companies (NBFCs) such as Kolkata-based Srei International, Capri Global (5%) and Indiabulls group (little less than 5%) whose own merger proposal was shot down by RBI last year. (Read: Coup at Lakshmi Vilas Bank: 7 Directors Ousted, in an Open Snub of RBI)

    Here is the gazette notification issued by FinMin...
     
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    COMMENTS

    sushilprasadassociates

    2 weeks ago

    Et tu LVB!

    Just goes on to show how anachronistic our regulatory systems and our understanding of functioning of financial markets and institutions are!

    And for some folks, privatization is the only solution to the mess which is known as Indian Banking Industry!

    s5rwav

    2 weeks ago

    Will Bogus Withdrawals of Rs 5 Lakh Take Place? I am Babubhai Vaghela from Ahmedabad. Thanks.

    GST Council law panel to finalise amendment to law related to fake invoices
    An urgent meeting of the Law Committee of the GST Council will be convened on Wednesday in the national capital to discuss in detail the issue of fake GST invoice frauds and further tightening of the GST registration process and work out other legal measures, including necessary law amendment required in the GST Act, to do away with the menace of fake invoicing, Finance Ministry sources said here on Monday.
     
    According to Finance Ministry sources, the meeting is part of the nationwide drive against the fake GST invoice frauds under which in last four days, the Directorate General of GST Intelligence (DGGI) has arrested 25 persons, including two professionals, and identified about 1,180 entities and booked 350 cases against unscrupulous elements involved in availing and passing on ineligible input tax credit (ITC) fraudulently.
     
    The crackdown, which was carried out from November 9-13, has been resumed on Monday after Diwali recess.
     
    Finance Ministry sources said that the fake invoices were not only issued for availing or passing on ITC, but were also used as conduit for nefarious activities leading to tax evasion, massive bank loan fraud, money laundering and hawala transactions. This will have very serious impact on the economy in the long run.
     
    These activities have been largely carried out by non-existent or fly-by-night firms and by using a network of firms to usurp ITC on commission basis.
     
    Sources acknowledged that these activities have been carried out primarily by those unscrupulous elements who have exploited the ease of doing business conveniences in the existing system by getting a GST registration easily and quickly and later take advantage of the liberalised norm for grant of registration in GST.
     
    Sources said that the GST Council's Law Committee would consider the impact of the issuance of fake invoices and strict action required under the GST law to curb these activities.
     
    The committee would also do some out of the box thinking on this issue as at present the only way to curb this illegal activity is to identify the chain of entities involved in the issuance of fake invoices and availment of credit and take strict action against them for preventing such fraud, including arresting the masterminds who run the whole network of firms and indulge in passing on fake credit.
     
    Finance Ministry sources said that the committee would deliberate on the measures that are required to plug the loopholes in the law which are being exploited by the unscrupulous elements to defraud the exchequer.
     
    It is learnt that the Finance Ministry is in the process of plugging the gaps in the GST registration process to ensure that only genuine businesses get a GST registration and those which have the intent to defraud the system are purged out at the registration stage itself.
     
    Sources explained that the businesses, whose owners or promoters do not have commensurate financial track record, like filing of income tax returns and payment of income tax to the government, may require detailed physical and financial verification by tax officers, before their companies can be considered for GST registration.
     
    The provisions related to deemed registration under the GST law may also be tightened to prevent misuse of such provisions by fake dealers.
     
    Besides, the provisions related to suspension of registration may also be streamlined to make the procedure of suspension and cancellation of registration more efficient and faster, so that such fraud operators can be prevented in time from continuing to pass on fake credit down the chain, added a source.
     
    It is also learnt that data analytics techniques will be used to identify such taxpayers, who are suspected to be indulging in fraudulent activities, and a coordinated action is likely to be taken against such elements by suspending their registration, followed by detailed physical and financial verification by field officers to check the genuineness of their operations, before they are allowed to reuse their registration.
     
    Disclaimer: Information, facts or opinions expressed in this news article are presented as sourced from IANS and do not reflect views of Moneylife and hence Moneylife is not responsible or liable for the same. As a source and news provider, IANS is responsible for accuracy, completeness, suitability and validity of any information in this article.
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