On paper, the Securities and Exchange Board of India (SEBI) has banned depository participants from collecting deposits from the investors.

``However, a retail DP - Integrated Enterprises India Ltd - is compulsorily collecting a sum of Rs 1,000 or Rs 3,000 under so-called plans before further operations in the DP account are allowed. This is a plain blackmail - you pay and then operate or else... While opening the accounts, it had foregone certain charges for which it, in turn, availed of concessions from the National Securities Depository (NSDL). It had also promised certain services and additional freebies. As aresult, it managed to attract largest number of accounts from the investors - 1,50,000 clients,'' said an investor. Several other DPs are planning to follow suit.

``Now the company (Integrated Enterprises) has changed its colour, it is seeking a sum of Rs 1,000 or Rs 3,000 from clients towards `deposit'. It has plainly refused to accept transfer instructions thereby completely freezing account and exposing whole investment to a huge risk,'' he said. On an average, if it collects Rs 2000 per person, Integrated Enterprises can mobilise funds to the tune of Rs 30 crore.

While doing this, DPs are flouting the guidelines of two regulators. The Reserve Bank of India is the regulator for deposit mobilisation and DPs, as market intermediaries, comes under the Securities and Exchange Board of India. ``The RBI has not authorised DPs to collect deposits. Who will monitor the deposit mobilisation activity of DPs. Has the RBI authorised them? How will DPs use this fund?'' ask a market analyst.

Moreover, the SEBIhas asked DPs, especially banks, not to collect deposits for opening demat accounts. Ignoring the SEBI directive, several banks - mostly private and foreign ones - are still asking investors to open savings bank accounts and keep a minimum amount of Rs 5,000 or Rs 10,000. Although the SEBI has been looking into allegations of compulsory `deposits', the decision of DPs promoted by private companies to ask for deposits has appalled investors.

Said a hassled investor, ``Can you imagine the plight of a small investor who owns 100 shares of SAIL which was recently quoting at about Rs 8-10 and is under compulsory demat list.'' First, he has to fork out Rs 1,000 as deposit and other expenses, including two photographs, for opening the account. He has to wait for a month, then sell and wait till pay-out for a sum of Rs 800 as sale proceeds.

``There is a facility to sell shares on physical delivery basis but only at a discount of 10 per cent. Thus, the demat system has put the small investor at a loss, wherther heopts for demat delivery or physical delivery. ``If a DP is concerned about its processing charges, it must be recovered as per instruction/request on the counter. It can not be collected in advance -- that too a minimum of Rs 1000,'' investors said, urging for action by NSDL.

``Is this system set up to drive away the small investors from the equity market? Is this system designed to benefit some companies like NSDL and its participants? It is surprising that the SEBI, RBI and NSDL have not succeeded in stopping this deposit business of DPs,'' said an investor association in its complaint to the SEBI and the RBI. Investors fear that the demat process will be severly hit by the unfair approach of the DPs.

Meanwhile, investor accounts at NSDL have crossed the one million-mark. With the increasing spread of depository awareness and depository participant services, the number of investor accounts has been growing at a very rapid pace. At present, market capitalisation of demat shares have crossed the $127-billion mark. Till date over 13.54 lakh shares have been dematerialised by the NSDL.

As per SEBI directives, 543 companies shares are to be dematerialised. The NSDL itself has more than 109 depository participants and its services are spread over 1991 places in India.