Nearly Rs 4 trillion of shares still held in physical form, shows analysis

Even some blue-chips have over 30% shares in physical form

The regulator may have a heavy task at hand with its recent attempts to phase out physical share certificates.

While most trading happens in demat form, physical shares account for a significant chunk of holdings by value. A Business Standard analysis of the latest shareholding patterns of 3448 listed companies show that as much as Rs.3.91 trillion worth of shares are still held in physical form. A total of 3282 companies had some physical shares as of September 2018.  

The stock market regulator, Securities and Exchange Board of India (SEBI), had come out with norms earlier this week on transferring securities in the physical mode for those processing such requests, done through agencies called Registrar and Transfer Agents (RTAs).

“It has been brought to the notice of SEBI that RTAs are seeking various documents for effecting tranthe sfer of securities and the documents sought vary across RTAs,” said the circular dated November 6. 

The circular said that it had received representations on the issue. It subsequently held meetings with the Registrars Association of India (RAIN) and Depositories. A standardised procedure has subsequently been arrived at to effect transfers in physical mode.

It looked at issues such as non-availability of identification documents, and issues related to name mismatches among other issues.

The regulator had discussed the issue of pushing dematerialization in a bigger way in its March 2018 board meeting. The minutes of the board meeting pointed out many disadvantages of the physical format.  It said that a lack of Know Your Client (KYC) procedures in physical transfers leaves it open to misuse. The KYC procedure helps investors’ identities to be clearly established.

The board meeting minutes said that dematerialisation can help stop other fraudulent activities as well.

“…in order to protect the interests of the investors in the securities market and to curb fraud and manipulation involved in the physical transfer of securities by unscrupulous entities, it is imperative to mandate compulsory holding of securities in dematerialized form for effecting the transfer,” it said.

Following numerous subsequent queries on the matter that the regulator noted in an August 2018 circular, it said that shares could still be held in physical form. It is only their transfer that requires dematerialization.

“The amendment does not prohibit the investor from holding the shares in physical form, the investor has the option of holding shares in physical form even after December 5, 2018,” said the August 10 circular.

It added that transfers in physical form can still happen in the case of inheritance or succession. It can also be made in the case of changes in the order of the names that appear on a share certificate.

Other transfers would require dematerialisation, the circular had said.

This would still mean a lot needs to be done before the dematerialisation objective is fully met.

The top three companies in terms of the largest value of physical shares showed over thirty per cent shares held in physical form.

Many comprise India’s largest companies. Two of the top three were part of the S&P BSE Sensex and the Nifty 50 indices.