Systemic Roadblocks
I have often argued that India has rushed in to adopt several technology-intensive online systems that are shutting out large sections of the population who are not tech-savvy or do not have access to infrastructure available in urban centres. Even for those who can use online systems, the experience is often very frustrating.

Our cover story this time outlines the problems unleashed by e-filing of tax returns. Similarly, the capital market has been transformed by automation but the retail investor population has shrunk. Unfortunately, successive chairmen of the Securities and Exchange Board of India (SEBI) have been too busy pushing the automation agenda to bother about those who can’t keep up. The five-year bull-run and the gush of foreign investment allowed them to do so.

This issue of MoneyLIFE has two letters exemplifying the travails of retail investors wanting to access the capital market. The first is about the mindless application of Know Your Customer (KYC) rules often frustrating the opening of demat or trading accounts. Gopinath Prabhu, who runs a brokerage firm in a small town near Mangalore, says his friend’s demat application was rejected because he could not produce proof of residence as the house was in his father’s name. Prabhu asks a common sense question: if the submission of a PAN is now mandatory and the PAN card states the father’s name with the same address as in the application, why shouldn’t the telephone bill in his father’s name be an acceptable proof? After all, India has a joint family system.

Ironically, the same telephone bill allowed the friend to open a bank account in the same town and, as Prabhu suggested to him, the bank account allowed him to obtain a demat account. In effect, he found his own solution to the mindless, bureaucratic obstacle. But can’t the process be made less frustrating? We have written to SEBI and will wait for an answer.

Similarly, investor participation in the primary and secondary market is hampered for want of market infrastructure. Vijay Samant has written several letters to SEBI pointing to the fact that several initial public offerings didn’t have a single bidding centre or a banker to the issue in the entire state of Goa. Investors determined to apply had to send their applications to Mumbai, wait for refunds and fork out hefty bank charges for outstation cheques.

Prabhu also writes about how it took 15 days to clear a cheque of Rs2,000 from his client, from which the bank deducted Rs80 as collection charges. That both these cases pertain to prosperous states of India, with strong investment ethos, reflects the poor reach of the domestic market infrastructure.

Then there are cases like the one mentioned by Nagappan V of the Madras Stock Exchange (see Letters to the Editor), where a retired military officer is frustrated by the callous treatment meted out to small investors by large brokerage franchisees. In one of our earliest issues of MoneyLIFE, I had written about another retired brigadier, who was about to be cheated by his broker (but was saved by our intervention), when he tried to encash some long-term holdings to raise money for his wife’s medical treatment. In that case, a broker of the Mangalore Stock Exchange was masquerading as a member of the Bombay Stock Exchange where he operated as a sub-broker. In this case, even caveat emptor (buyer beware) would not have helped in the absence of a centralised, exchange-wise broker list being available to investors. We took up this issue with the regulator a couple of years ago but nothing has changed.

Instead, brokers caught in wrongdoing can now get away by filing consent terms and paying a paltry fine without admitting or denying guilt. The practice is borrowed from the Securities Exchange Commission of the US, but unlike it, SEBI’s website provides no details of the charges against the brokerage firm, leaving an investor clueless about the gravity of their misdemeanours. Indian investors can only hope that when foreign investment interest begins to flag, our policy-makers will pay attention to domestic investors’ needs

Ms Dalal is the Consulting Editor of MoneyLIFE. Subscribers get free help in resolving their problems with select providers of financial services. She can be reached at suchetadalal

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