Consumers will thank the Modi government for this simple yet revolutionary move, which is long overdue, says Debashis Basu.
Illustration: Dominic Xavier/Rediff.com.
It is bad enough that a financial consumer today is targeted from all sides to buy more than two dozen products, many of which are either useless or harmful.
Having bought various financial products, they have a big problem of ensuring their safe custody (if these are in a physical form), setting up alerts to pay the premium, renew the fixed deposits and so on.
It is obvious that with huge advances in computing, mobile telephony, security of databases and an explosion in safe online transactions, it is easy to create a single electronic custody for every individual customer.
Such a custody would hold all her financial assets, record the nominations, alert her to surrender, renew, redeem such assets, as also to alert her to the gains and income from them, all linked to her bank accounts.
A big move to help the stock market investor was made almost two decades ago, thanks to an energetic top brass of the Securities and Exchange Board of India and a supporting team in North Block.
Within a matter of a few years, stock certificates and the much-abused share transfer forms vanished, as the National Securities Depository Limited (NSDL) and later the Central Depository Corporation (CDSL) came up to ensure compulsory dematerialisation of share certificates.
This went hand-in-hand with computerised trading which had come up just a few years before -- both ensuring faster settlements.
After that, things have progressed in fits and starts, that hardly benefit the customer.
Insurance repositories are hardly functional five years after being conceived.
Fixed deposits are in paper form and so are several of fixed income products.
Quite remarkably, the present government, which has not bothered much about financial consumers, did take a step in this direction within months of coming to power.
The Narendra Modi administration took charge in May 2014. The finance minister’s first Budget had to be presented in mid-July. Even within that short period, he had included an interesting idea in the Budget proposals: A single demat account.
Jaitley’s exact words were: ‘The Indian capital markets have been a source of risk capital for a growing India. I propose to take a number of measures to further energise these markets including: (i) Introduction of uniform KYC norms and inter-usability of the KYC records across the entire financial sector. (ii) Introduce one single operating demat account so that Indian financial sector consumers can access and transact all financial assets through this one account.’
On Wednesday, Mr Jaitley will present his fourth Budget. But there is no sight of either single demat or inter-usability of KYC records.
Worse, the regulators have gone on multiple directions, setting up hugely wasteful new initiatives.
What happened?
It appears that the Financial Stability and Development Council, a group of all financial regulators and the government, was supposed to implement the idea of single demat which in turn passed it on to an Inter-Regulatory Technical Group (IRTG) to deliberate on the idea and feasibility of implementation.
Nothing effective has happened thereafter.
Meanwhile, Sebi amended the Depositories and Participants Regulations, which allowed sharing of information between depositories.
This allowed generating consolidated statements of all demat assets that customers hold.
From March 2015, all customers have been getting consolidated statements for mutual fund units held in Statement of Account (physical) form and securities held in demat accounts across depositories.
But what about the vast array of assets that could be held in demat form including bank fixed deposits, corporate fixed deposits, insurance policies and National Pension Scheme units?
Well, most actions since the IRTG group was formed were a step away from a single demat idea, especially since the bumbling insurance regulator has insisted on going ahead with its insurance repository.
Worse, as late as September 2016, the Reserve Bank of India jumped into the fray and added to the mess.
It came up with the idea of another non-banking finance company to be called ‘account aggregators’, which should be have capital of Rs 2 crore.
They will merely aggregate the customer holding, drawing them from various sources.
Fortunately, this may not be a viable business and so the idea may die a natural death.
The FM’s idea in 2014 in pushing for single demat was excellent. He must not allow various 'independent' regulators, driven by turf wars, to destroy it.
What can he do?
The oldest, most experienced and well-proven system of holding financial assets in demat form are the stock depositories.
It would be simplest for the FM to expand their remit with a simple amendment to the Sebi (Depositories and Participants) Regulations enabling depositories to hold various types of financial assets.
If other regulators like RBI, IRDA or PFRDA want any specific kind of oversight these can be easily added to the system.
Financial consumers will thank the Modi government for this simple yet revolutionary move, which is long overdue.
Debashis Basu is the editor of www.moneylife.in
