's queries on NSDL's future. Excerpts: Sebi's annual report for 2005-06 says NSDL will no longer be involved in the process of establishing a central database of market participants and investors through unique identification numbers. Since you were asked to do this by Sebi in 2003, why have you been junked now that Mapin is to be revived?
We have no information on this. We have an MoU with Sebi for undertaking this work. I presume Sebi will let us know the future course of action at an appropriate time.
How much did you spend on Mapin and how much did you make through registrations? Will you now bid for it? Sebi has said, agencies capable of providing such facilities in a cost-effective manner will be assigned the responsibility of maintaining the database.
The money is not too significant. Our annual turnover is around Rs 120 crore and we'd have earned Rs 12 crore through Mapin registrations over three years "" we've registered 3.13 lakh individual investors and another 0.72 lakh non-individual investors.
We have already offered to hand over the database and the related papers to Sebi. As far as the hardware and software is concerned, it belongs to NSDL, and we will find out what can be done. When we took up the job, we were aware of the risk involved in signing an MoU with our own regulator. Even a small change in regulation could make the MoU non-operational or a delayed implementation could affect the viability of the project. An MoU between two clearly unequal entities can produce unusual results. We took that risk because we thought the database was important for the capital market and Sebi was keen that we undertake the work.
You were a member of the Sebi committee that looked into Mapin and discontinued it the first time around.
Yes, I was a member of the panel headed by Jagdish Capoor. However, I resigned from the panel for reasons I would not want to discuss in public.
Now that you have made significant progress in demat accounts and have been restrained from entering other related businesses, do you think that NSDL has achieved a level of saturation?
I don't know what you mean when you talk of restraint on other related businesses. As you are aware, Sebi had itself signed the MoU with us for Mapin. We are also working on the Tax Information Network, a depository of nationwide tax-related information on behalf of the Government of India.
What is the impact of making PAN mandatory for opening a demat account?
We have around 77 lakh demat accounts already. Since April 1, 2006, no new demat account can be opened without PAN being made available. Despite a downturn in the market after April, we have been opening about 80,000 new accounts a month. So, I do not see the account opening activity coming down. However, some investors may close their accounts and some amount of clean up would take place with PAN becoming mandatory.
In the long-term, however, we see a tremendous potential for growth, considering that a lot of young people are coming to the job market, leading to surplus income in the hands of the young generation.
What's your biggest challenge?
The challenge is not only in improving the number of demat accounts, but also in handling large volumes of transactions. Anticipating huge increase in volumes, we are investing in technology so that we stay ahead of the curve. Technology needs to be cost-effective. An equally important challenge for us is to keep the system at zero-error. Error-free operation is the basis on which credibility is built. We have ownership records of Rs 26 lakh crore worth of securities and this shows the confidence of investors in NSDL.
What are the steps taken by NSDL to make the system foolproof after the IPO scam?
Crooks are always ahead of the system and frauds can always take place. We also keep trying our best to make the system robust. In December, last year, we asked the DPs [Depository Participants] to identify if 20 or more accounts have a common address and a fresh verification of KYC [know your customer] was ordered to be undertaken. Accounts where KYC was incomplete and investors did not identify themselves have either been closed or frozen. In March 2006, we installed a central software in the depository, which checks whether more than 20 accounts have the same address across multiple DPs.
In such cases, the DPs are asked to undertake a similar verification exercise. It is quite clear that if we had a proportionate allotment system or if we had a Unique Identification Number [UIN] for investors, the IPO fraud would have been prevented. We are hopeful that PAN will substantially serve this purpose of a UIN.
What is the status of the Sebi order against NSDL?
As you know, SAT has issued a stay order and the matter is sub-judice. It would be inappropriate for me to comment on the matter at this stage.
