Sebi proposes cash benefits distribution via depositories

The Securities & Exchange of India (Sebi) has proposed new norms to allow distribution of cash benefits including dividends, interest and redemption payments through depositories.

Currently, cash benefits are distributed directly by issuer companies to investors mostly through their registrar and transfer agents (RTAs). The proposal comes within a month after the alleged fraud by share transfer agent Sharepro Services which transferred dividends payable to shareholders to fake demat accounts by fraudulent means.

As per the Sebi’s discussion paper, allowing distribution of cash benefits via depositories would help dispatch payments faster and will also help track payments efficiently.

In case of any rejection of electronic credit, depository participant will also be able to approach investors for updating bank details so that investors can get credit directly to their bank accounts electronically.

“Currently, no information is available in the demat account with respect to entitlement of cash benefits and payment of the same to investors. In case any investor requires any information or has a complaint with respect to above benefits, they are required to approach the respective RTAs which may be inconvenient to the investors,” the discussion paper noted.

The new regulation would be applicable only to the securities that are held in the form of demat account, and in case of physical share certificates, issuers can continue to distribute cash benefits through RTAs.

Legal experts FE spoke to said the proposal is in-line with the global practices and would help improve transparency over payments. “In the current mechanism, detection of any fraud becomes really difficult. So, this is a step in the right direction. Further, the move will also help integrate everything with demat accounts. Now, investors can have access to account statements, alerts etc,” said a securities lawyer.

The regulator had started investigation into the matter of Sharepro following complaints by at least half a dozen companies including Britannia Industries, Asian Paints and Aptech. During the last week of March,Sebi had passed an order barring Sharepro Services, its promoters and other related entities after finding “serious lapses” in share transfer and dividend encashment services offered by Sharepro in certain cases.

Further, it asked all the listed companies who are clients of Sharepro to conduct an audit of their records for the last 10 years and advised them to switchover to another registrar enrolled with the regulator.

Currently, all the RTAs are regulated by Sebi registrars. As per Sebi data, there are currently 73 registered RTAs and two registered depositories.