Mumbai, Feb 19: The revenue department under the Union finance ministry has given an in-principle nod to waiving off stamp duty charges on the transfer of bonds in the dematerialised form. The proposal has been forwarded to the law ministry for its comments.The move has come as a shot in the arm for investors who are currently paying stamp duty charges on transfer of bonds, sometimes in excess of two per cent in some states. When it becomes law, the will give a leg-up to asset securitisation by banks and financial institutions as these securities can be traded without having to pay stamp duty on every transfer.
High stamp duties have made trading in debt instruments most unviable and hence the low levels of liquidity in this segment.
Transfer of equity shares in the demat mode had been exempted from stamp duty charges in the Depository Act of 1996. In the case of physical transfers of equity shares, the current stamp duty is 50 basis points (0.5 per cent).
When stamp duties are abolished for dematbonds, a large amount of trades in the debt segment is expected to be routed through the depository. "We are all for promoting the depository. In this regard we have been actively considering waiver of stamp duty on bonds in the demat mode as has been done in case of equity shares," said union finance secretary Montek Singh Ahluwalia.
He said that he was not aware of the stage at which the matter was pending, but sources said that the revenue department has already given its nod to the proposal and forwarded the same to the law ministry. "The law ministry is studying the legalities involved in introducing such a change. The situation would only be clear once its comes out with its recommendations," said a source.
ICICI, which recently drew a very poor response to its offer of bonds in the demat mode, took the lead along with the National Securities Depository Ltd to lobby the finance ministry on the stamp duty issue. ICICI had obtained a legal view on whether this could be done and the opinion was foundto be favourable. It was felt that there is no point discriminating against debt instruments when equity was already exempt from stamp duties in the depository. In view of the poor response received by ICICI for its demat option in bonds, the institution has abandoned the idea for its forthcoming bonds issues, the first of which is slated for launch in March this year.
"There is no way in which investors would subscribe to bonds in demat form unless the stamp duty on transfer of bonds is waived. This is the only way in which liquidity can be brought into the system," said a source.
North Block nod for interconnectivity plans
The union finance ministry has given an in-principle nod to the National Securities Depository Ltd's proposal to waive off the interconnectivity norms for wide area networks in its case. The current norms of the Department of Telecommunications (DoT) prevent one wide area network (WAN) to interconnect with another. In other words, the WAN of the depository participant (DP)cannot connect with that of the NSDL. Therefore, a branch office of a DP cannot communicate online with the depository but has to route it through one terminal at the headquarters which has considerably slowed down the expansion of the depository.
"We have given an in-principle approval to the proposal. This is absolutely necessary if the depository is to grow. We are all for it. We have discussed the issue with DoT and expect a positive response," the finance secretary, Montek Singh Ahluwalia, told The Financial Express.
The telecom commission, of which Ahluwalia is a member, is slated to take up the issue later this month. With the finance secretary in favour of the move, the market is hopeful that DoT would relent.
It had recently given a waiver to the Bombay Stock Exchange to allow it to connect the two networks. We are awaiting the result of the telecom commission as the growth of the depository hinges on their decision," said an NSDL source.
Copyright © 1998 Indian Express Newspapers (Bombay) Ltd.
