MUMBAI, February 10: The move by companies to pay a one-time custody charge to the depository on behalf of investors has not led to any rush towards dematerialisation. This, according to National Securities Depository Ltd's managing director, CB Bhave, proves that investors are not staying away from the depository due to the custody charges being levied on them but on account of the lack of liquidity in the demat segment.Speaking to The Financial Express a day after SEBI took another step forward to boost liquidity in the demat segment, Bhave said that the issue with the investors is liquidity and not custody charges as is being made out to be by a section of the market. "We all underestimated how important liquidity is to the retail investor. We have now come to understand that the resistance from the retail investor was not due to custody charges or lack of knowledge about the depository system, but liquidity," said Bhave.
In this light, Monday's decision to allow investors to deliver dematshares in the physical mode as well will provide the much-needed fillip to liquidity. Companies which have made the one-time payment to NSDL are Global Telesystems, Infosys Technologies, Krishna Filaments, Dhampur Sugar Mills Ltd, IDBI, Bank of India, Prism Cement, IndusInd Bank, Wipro Ltd, Blow Plast, DGP Windsor, VIP Industries, Weizmann Ltd, United Western Bank, Cholamandalam Investment & Finance Ltd, Isibars Ltd, LIC Housing & Finance Ltd, Himatsingka Seide Ltd, EID Parry, Usha India and KG Denim.
Of these, only Wipro, Infosys, IndusInd Bank, Krishna Filaments, Weizmann Ltd and Dhampur Sugar Mills have seen a significant growth in the number of shares dematerialised. "But even here the bulk of the dematerialisation so far has come from a couple of institutions or the promoters and employees who are in any case not going to be regular traders in the stock," said Bhave.
He added that even though the custody charge, which is a mere 3.5 basis points from NSDL's side and another 3.5-5 basis points as themark-up price fixed by depository participants, is not an issue with investors, the depository would try its best to bring the rate down further. "We would review the situation and if the growth in levels of demat continues and if there is a need to bring down the charges we would not hesitate to bring down the custody charges," said Bhave.
As regards rematerialisation charges, Bhave said that there was no need to review these charges right now as there is almost a negligible amount of rematerialisation taking place. "If at all we do feel the need to revise the charges they would only be in an upward direction as the idea is to keep the people in the demat mode. Of course, once liquidity is brought into the system there is no need for an investor to rematerialise his holdings," said Bhave.
Copyright © 1998 Indian Express Newspapers (Bombay) Ltd.
