The abuse of demat accounts exposed by the Securities and Exchange Board of India (Sebi) has put Bank Depository Participants (DPs) in a quandary. Banks make little money on their DP services and have always viewed it as a low-return, minimal risk facility offered to high-end customers as part of a bouquet of services. The IPO scam has changed their perception and costs almost overnight. A leading private banker says, ‘‘Suddenly, we are forced to look at it as a high-risk business, requiring bigger investment in software and supervision. This isn’t what we had anticipated.’’ Since the DP business has very thin margins there is little interest in expanding the service outside major metros and large cities. The risk of a scam will act as a further disincentive to spread the DP network and this in turn will skew an already complicated situation. While dematerialised transactions are mandatory in the secondary market, the physical infrastructure, especially in terms of DP presence, is woefully inadequate in smaller towns and cities. Consequently, investors are forced to trust DPs by giving them a Power of Attorney to manage their accounts or handing over blank DP slips. The irony is that investors find DP charges high, DPs make very little money, but the Depository makes a healthy profit and companies (who are willing to share the cost burden) are the biggest beneficiaries of paperless trading. It is probably time for the regulator to get all sections of the depository system to sit together and hammer out a fee structure that is fair to all and stimulates healthy market development.
Homeless in Mumbai
Reliance Industries’ Rs 1,104-crore acquisition of a 7.5 hectare plot of land at Mumbai’s Bandra-Kurla complex caused another big spurt in the already overheated property market; but company sources plaintively explain that it is only for ‘‘self’’ use. After a bitter battle for control between the Ambani siblings, India’s largest private company and Fortune-500 lister is left without any corporate headquarters. After the demerger, the Mukesh Ambani Group’s centre of operations is just two floors of Maker Chambers IV at Mumbai’s Nariman Point. Much of Reliance’s ferocious growth was planned and implemented in these very offices, but those days the brothers used to laugh off any suggestion of a dispute between them or their wives. Along the way, Reliance made several formidable acquisitions that would befit a large conglomerate’s head office — these included a building at Ballard Estate, the sprawling bungalow and office building that came along with acquisition of BSES Ltd, and later the expansive modern township called the Dhirubhai Ambani Knowledge City just off Mumbai. All these now belong to Anil Dhirubhai Ambani Group. When asked about the ridiculously high price paid for the Bandra plot, a Reliance insider explains that cost was not really a consideration since it is for ‘‘self-use’’ and the creation of a ‘‘state of the art headquarters’’. This sentimentality is however tempered by pure commerce and the office complex will include a massive convention centre plus shopping, restaurants and multiplex theatres.
In money again
The Bandra-Kurla financial district has now emerged as the nerve centre of raw financial power in India. It houses the National Stock Exchange and several top banks, financial institutions and Funds. The Mumbai Metropolitan Development Authority (MMRDA), which is in charge of this complex, had earned a windfall profit hawking these plots during the property bubble of the mid-1990s, but the Maharashtra government extracted its resources to fund various subsidy schemes. Consequently, MMRDA has been rather lax about maintaining this high-profile complex and had even junked a plan to beautify the Mithi River bank that was part of its original, decade-old sales pitch. Now that the MMRDA has another Rs 2,295 crore in its kitty (Rs 1,104 crore from the convention centre complex sold to Reliance and Rs 1,190 by selling nine other plots) it will be expected to deliver on its promises to the financial district before diverting funds to the Mumbai Urban Transport Project and the Mumbai Infrastructure Development Project.
On January 19, Sebi registered another regulatory first by issuing ‘cease and desist’ orders against Mathew Easow, a stock market expert who offers investment advice to viewers of a television channel and website. Media channels are often breezy about disclosures by stock market experts, but Sebi’s action signals that the regulator is watching and listening rather carefully. Its order under the Prohibition of Fraudulent and Unfair Trade Practices regulations is based on its finding that Easow’s trading position in several stocks was the opposite of his recommendations. He was actually selling the stock when he advised investors to buy.
While this practice may be as old as the capital market itself, it has attracted regulatory action for the first time in India; this is bound to inhibit those who have made a career out of issuing tips and advice. The regulator also pointedly reminded the media channel of its responsibility to ‘‘ensure’’ that it is not misused by analysts for personal gains and exercise ‘‘due care and diligence’’ in calling persons with proven credentials to offer advice.