According to Sebi sources, in spite of pressure from various quarters, they were taking their time over it, as they did not want all and sundry masquerading as `venture capitalists' rushing in for registrations. The biggest fear of the officials is that the ubiquitous finance companies could well attempt an entry into the sector. "It is all right if the venture capital company is backed by a bank or a financial institution of good standing. But we do not want these so-called finance companies coming to us," said a Sebi source.

The problem facing Sebi is how to formulate guidelines so that entry to such companies is restricted. Many of the finance companies, incidentally, are backed by real estate barons who are flush with funds. Sources familiar with the developments pointed out that entry norms were crucial. These norms have to be strict enough to deter those who are merely seeking an entry for short-term gains.

The report by the KB Chandrasekhar Committee, which was approved by the Sebi board in January this year, lays out only the broad parameters for venture capitalists.

The committee has also recommended that Sebi should be the single nodal regulator for VCFs, which lays the entire onus on the securities watchdog. The report itself observes, "Venture capital is a high-risk area. Out of 10 projects, 8 either fail or yield negligible returns". In fact, the committee has strongly advocated entry of foreign venture capitalists as "For venture capital activity, high capitalisation of venture capital companies is essential to withstand the losses in 80 per cent of the projects.

In India, we do not have such strong companies." Incidentally, there is a good possibility of Sebi restricting domestic entry of VCFs to those backed by banks, mutual funds and insurance companies, which is what the committee report has recommended in its reference to restricting entry to "sophisticated investors."

The finance companies are a die-hard species; when the financial sector was booming, these companies jumped into all the activities in that segment. When this sector crashed, they were left directionless for some time. Then came the boom in the information technology sector and many of the finance companies have willy-nilly transformed themselves into IT companies overnight.