Concerned over grey mkt growth, Sebi calls for one regulator

Expressing concerns over a fast-growing grey market in the financial sector, Sebi chief U K Sinha on Wednesday called for a single watchdog to regulate all entities collecting public money under various illegal means.

The Securities and Exchange Board of India (Sebi) Chairman also pointed that these deposit-taking firms were taking advantage of the loopholes in existing laws and the markets regulator has raised the issue with the government.

"We have also taken up this matter with the government so that the loopholes are plugged," he said at an investment seminar in Mumbai, while adding that the government will perhaps come out with a single regulator for these companies.

The comments come at a time when Sebi is fighting a long-drawn case against Sahara group, which has been asked by the Supreme Court to refund over Rs 24,000 crore (Rs 240 billion) raised from over three crore investors through issuance of certain bonds without Sebi's approval. Sebi has been to facilitate the refund after ascertaining the genuineness of investors.

Sahara group has claimed that it has already repaid a bulk of the bondholders and the total outstanding liability is less than Rs 5,120 crore (Rs 51.2 billion) it has paid to Sebi towards refund.

Without naming Sahara group, Sinha said that a company recently claimed that it has refunded Rs 20,000 crore (Rs 200 billion) to the investors, of which 90 per cent in cash in the last 3-4 months period.

Sinha further said that Sebi is worried over the rapid growth of the grey market in the financial sector and called for a single watchdog to regulate companies taking deposits from the public illegally.

"There is a general perception that gold and real estate are villains for the stagnant or falling investments. But, we are worried of the rapid growth of the grey markets in the financial sector. Therefore, there is need for a single watchdog to regulate companies taking deposits from the public

in an illegal manner," Sinha said.

Pointing out that many countries have only one regulator to control such sectors, Sinha said, "when the collective investment scheme (CIS) was brought under Sebi Act, certain exceptions were given to Nidhi, chit funds and cooperatives which were kept out. But today certain people are taking advantage of those well-thought-out, well-intentioned exceptions."

He further said, "The purpose of me mentioning the CIS is that the volume now is quite large. So, we all have to work together."

Currently, cooperative banks and deposit-taking NBFCs are regulated by the RBI, while chit-funds are under the purview of the state governments.

Noting that the public has started agitating against illegal companies raising money in many parts of the country such as Alipur, Durgapur and Cuttack, Sinha said when people start resisting, the state governments will be forced to act.

Flagging some worrisome signs in the marketplace, Sinha pointed to the declining trend of corporates raising capital through primary markets. The figure has dropped to Rs 1,600 crore (Rs 16 billion) in 2012-13 from few thousand crores in the previous year as over Rs 60,000 crore (Rs 600 billion) planned IPOs were called off.

Sinha also said dabba trading has to be stopped, otherwise it will destroy the market.

On the new consent rules, which is being challenged by Reliance Industries at the SAT, Sinha said the Sebi will start investor awareness campaigns from next week on the consent mechanism.

He also said in the past seven months, the regulator had rejected 150 consent applications.

Sinha also flagged concerns on the steep fall in certain stocks after their IPO and listing and said a whopping two-thirds of the issues listed in the past three years are trading below their issue prices.

On opening more Sebi offices, he said the regulator has already opened offices in 10 cities and plans are afoot to open six more offices in smaller cities.

Image: Sebi chief U K Sinha