Sebi chief questions Budget plan for transfer of surplus funds to govt

Securities and Exchange Board of India (Sebi) Chairman Ajay Tyagi has written to the finance ministry, seeking a review of the Budget proposal that mandates transferring 75 per cent of the market regulator's surplus funds to the central government, it is learnt.

In a letter to the ministry on July 10, Tyagi said the proposed move, part of the Finance Bill, 2019, would affect the functioning of Sebi as well as the securities market. He said the proposal was already being discussed by the Financial Stability and Development Council (FSDC), regulator for the financial sector, and that the amendment to the Sebi Act, through the Finance Bill, could have waited until the Council's final decision. Tyagi argued on the rationale for the regulator keeping a reserve fund and its importance in protecting the interests of investors.

The move has also been opposed by the Sebi Employees Association (SEA), brokers' forum, and many other market participants, saying it potentially amounts to an infringement of the independence of the regulatory body.

An e-mail sent to Sebi did not elicit a response. A text message to Tyagi remained unanswered.

The Sebi chairman is learnt to have met Finance Minister Nirmala Sitharaman earlier this week on the issue.

“Two provisions — one related to the surplus transfer and the other related to seeking prior approval from the finance ministry for raising expenses — haven’t gone down well with the markets regulator. The provision is under review,” said an official, requesting anonymity.

Another argument from Sebi's side is that the new provision is like an additional tax.

“Sebi levies fees on intermediaries for rendering services but the move to transfer funds would become an additional tax on market participants,” said another person aware of the development.

Sebi’s general reserve was estimated at Rs 3,500 crore as of March 2018 and Rs 3,800 crore in March 2019, according to sources.

The Finance Bill proposes a 75 per cent cash transfer from the Sebi’s general fund to the government’s books, after creating a ‘reserve fund’ of the annual surplus. The transfer is proposed to take place after Sebi incurs all expenses mandated under the law establishing it.

Going by the provisions, Sebi might have to transfer around Rs 2,800 crore to the central government in the current financial year.

Finance ministry sources said the Department of Economic Affairs’ (DEA's) idea behind the move was to “address the issue of accumulation of huge surplus funds” with Sebi. The DEA had checked with the law ministry, which felt the funds received by Sebi “are public money and all public money received on behalf of the government would be part of the public account”.

Sources said it had been a long-pending demand of the government to transfer surplus funds to the public account; Sebi had not agreed. In the past six months, the DEA had apparently held several rounds of discussions with Sebi on this, without succeeding.