To make it easier for investors to get dividend and redemption payments on a fast-track basis, regulator Sebi is mulling allowing depositories to distribute all securities markets related cash benefits.
The proposed move, a final decision on which would be taken after a detailed consultation process with all concerned stakeholders, would help bring Indian markets at par with most of the developed markets where depositories usually distribute cash benefits to the investors, a senior official said.
Currently, depositories only handle non-cash benefits like bonus and rights shares issued by the companies, while cash benefits are handled by the issuers themselves -- either directly or through RTAs (Registrars and Transfer Agents).
This leads to some delay in the distribution of cash benefits, as the issuer companies distribute such benefits after obtaining information from the depositories only.
Depositories, which are like banks in the securities market, hold securities such as shares, debentures, bonds, government securities and mutual fund units, of investors in electronic form at the request of the investors through a registered Depository Participant.
Just like banks hold the funds for their depositors, the depositories hold the securities of investors in an account. Currently, there are two depositories registered with Sebi -- National Securities Depository Limited (NSDL) and Central Depository Services India Limited (CDSL).
In most developed markets and several emerging markets, depositories usually distribute cash benefits to their account holders, including dividend on equity and preference shares, interest and maturity proceeds on debt instruments, etc.
Depositories are also entitled to receive cash benefits from issuers which they arrange to distribute to beneficial holders. In many such markets, depositories commonly hold a restricted banking licence that allows them to handle cash benefits directly, although third party banks may also be used due to strategic or regulatory reasons.
"In India, however, distribution of cash benefits has evolved differently. Although non-cash benefits such as bonus, rights etc are handled through depositories, cash benefits are handled by RTAs or Issuers themselves. Issuer companies arrange for distribution of cash benefits by obtaining information from the depositories," as per a Sebi proposal.
With a view to have all securities related benefits at single point, Sebi is proposing that depositories may be enabled to distribute all cash benefits, including dividend, interest and redemption proceeds to their investors.
The regulator plans to undertake a detailed consultation process with concerned market participants on the issue of considering a mechanism where in all securities related benefits can be distributed at a single point.
