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The C B Bhave Chat

Read the transcript to find out how India's capital markets are finally coping with change.

Nikhil Lakshman (Fri Oct 11 16:51:05 1996 IST):

Good evening, Mr Bhave. Welcome to the Rediff Chat. Thank you for being with us this evening. There is a great deal of interest in the NSD, and I do hope you enjoy the experience.

hello mr bhave, one questien for the beginner. what's NSD and how it's useful for the indians staying abroad. ajit

Mr Bhave has had to rush to SEBI, but he is on his way. His secretary expects him to return by 5.30, so we guess the Chat will begin then. Sorry folks!

Mr Bhave has arrived, so start firing your questions folks!

Hello every one, I appreciate this opportuinty to be on this chat show.

Hello, Mr Bhave. There is a great deal of scepticism about the National Stock Depository. How will the NSD enhance the credbility of India's capital markets?

Good evening, Mr Bhave. Would it be possible for the NSD to be operational by the year-end? What are the obstacles you confront in getting the NSD moving?

Ajit: NSDL is a depository which enables shareholders to hold their shares in the form of accounting statements rather than as pieces of paper. this facility will enable people trading in stock exchange to settle theirr transactions far more efficently than in the paper based systems.

Mr Bhave, what do you think is a reaonable policy the Indian government should adopt towards MNCs?

I appreciate being able to interact with you Mr Bhave. My stockbroker friends in India are still confused about how the NSD will work? Would it be possible to provide some illunmination before we go along?

Brian Wallis: We are confident of starting our operations by the end of this month. Trading in depository shares will start on the national stock exchange by the last week of November. We do not see any obstacles in this. We will start with about ten securities to begin with.

Which are these ten securities?

Mr Bhave are you personally satisfied with the amount of foreign investment that has come into India after Liberalisation?

Have you interacted with foreign investors? Have you taken their opinions into consideration? What did they want to see happen?

Is there any model you are using for the NSD?

Will the pricing of shares in the NSD be any different? What kind of premium will they command?

Ronald Turner: In the NSDL the shares will be held as electronic entries in the accounts of the investors. When trades are done on stockexchange investors will have to move these securities in to the accounts of the brokers to enable the broker to deliver them to the clearing corporation. In turn these shares will be transferred to the buying brokers who are responsible for giving credit to the respective client accounts. The initial dematerialisation will be achieved by the share holder surrendering his share certificates and on verification by the company getting a credit in his account with the participant in the NSDL. Brokers, custodians and banks are allowed to be participants under the Indian law. Investors will have to open their accounts with one of these entities.

What has been the response from the BSE? from Indian corporates?

Amber: The shares in the depository will be traded in a separate segment from the physical shares. Since in the depository segments investors are assured of good deliveries and since no stamp duty is payable for transfers in the depository it is expected that depository shares may command a premium.

That's right. The BSE board and members must have some problems with the concept. Can you compel compoanies to adhere to the depository proposal? Or is it a voluntary endeavour?

How soon will the NSD have an impact on the capital markets?

Brian Willis: We have the names of eight, SBI, ACC, L&T, RELIANCE, IDBI, ICICI, HDFC, SIEMENS. We expect a couple of them to be finalized soon.

There is a feeling that the difficulty in obtaining shares after a transaction apart, there is a great deal of foul play in the manner in which trades take place. How will the NSD eliminate that phenomenon?

Mr Bhave, in your knowledge how far do you think the Indian economy has reched as of now?

Brian Willis: We are starting depository operations in India for the first time. It would be reasonable to expect that the markets will feel the impact of the depository in about six months.

What kind of impact will it be?

Mr Bhave, you spoke of eight Indian companies which had agreed to be part of the NSD. Did it take a great deal of persuasion to get them on board? Did the initiative come from them? Or did it come from you?

Brian Willis: We are starting our operations initially with the NSE offering the trading facility. As a depository we are willing to offer our services to any of the other exchanges provided they set up clearing corporations which guarantee trades on the exchange. this is necessary because under the Indian law the depository does not handle the money part of the securities trade. The question of our compelling anybody does not arise. We hope to make our serivces attractive enough for the investors to want to be in the depository.

Have you set a time frame for 100 per cent of market transactions to take place via depositories?

Karen Hill: I think individuals cannot have targets about how much foreign capital will flow in to our country. I am of the opinion that upgrading the services in the capital market to international standards is necessary to attract foreign capital and the depostiroy is a step in that direction.

Mr. Bhave: How will NSD help the cause of the small investor's?

Mr Bhave, I asked somewhile ago what the response has been from the Bombay Stock Exchange and other corporates? Would you care to answer that question please?

Brian Willis: In any business it takes two to make a deal. We need to appreciate that these corporate agreed to come on board even while the depository was making preparations to be operational. We are confident that our actual operations will persuade many more to join.

Mr Bhave, what kind of an approach should the FIPB have, do you think extraneous factors have affected FIPB decisions?

How would the costs of transaction in a depository s compare with present transaction costs?

A small depositor: NSDL is meant to serve investors and whether small or big the services would be the same. The question of access to small investors across this big country would get adressed in a phase manner. the depository particpants such as banks and brokers would expand their network as the concept gains popularity among the investors and the particiapnts are able to make business sense out of their operations.

Amber ripley: The transaction cost for a buyer would come down from 50 basis points as a stamp duty to five basis points as a charge by the depository. In addition the depository will charge seven basis points per annum as custody charge. I understand that the custody charges for physical shares are anywhere between 25 to 35 basis points per annum. In addition in the depostiory transaction the buyer does not have to bother about sending the certificates to the company and the dangers arising from the loss or theft of such certificates.

ronald turner: I have already said that we are ready to offer our services to all stock exchanges and this includes BSE. The BSE has so far not responded positively to our suggestion. We understand from press reports that the BSE intends to set up its own depository.

Mr Bhave: As someone who has been intimiately associated with the capital markets, as a guru so to speak, what is your perception of the capital markets? Which way do you see it going?

What is the NSDL doing to attract investment?

Sir, You have have been deputy secretary, ministry of petroleum, in the federal government, What do you think about the proposed disinvestments in the PSU's?

If the BSE sets up its own depository, would it not undermine the NSD? Do you see a proliferation of depositories in the country? de