A large number of investors to United Commercial Bank (UCO) bank’s recent initial public offering (IPO) were in for a surprise when they received physical share certificates instead of credits to their depository accounts. Usually, physical certificates are allowed to be issued if investors do not have a demat account, if the application has an incorrect demat number or there are other mistakes.
On making inquiries, we found that the number of physical certificates issued in the UCO bank case seemed unusually large. Some investors even seemed to have received demat credits for one part of their allotment and the other part was in physical certificates. Various regulatory sources gave different details. The National Securities Depository Ltd (NSDL) said that 3,40,000 accounts have been credited in paperless form and they made up a substantial chunk of the IPO. The National Stock Exchange (NSE) informed us that 25 per cent of the issue amount has been allotted in physical share certificates while the rest was through demat credits. But Karvy Consultants of Hyderabad, who are Registrars to the public issue, gave us a more detailed set of numbers. According to Karvy, there were 10,43,949 applicants to the IPO, of which, 638,370 investors received allotments. Of these, 3,68,661 applicants were allotted shares in electronic or dematerialised form. And the remaining 43 per cent of applications received sent physical certificates. Isn’t this number astonishingly large? This is probably why so many investors have been writing to complain about receiving physical certificates after having submitted demat account details. However, a Karvy spokesperson insists that the number of physical certificates allotted is not unusually high. He also says that there cannot be more than 75 cases where the registrar would be responsible for punching errors. But the ‘technical errors’ and investor complaints do raise several important questions.
What’s the problem?
Why are investors angry at receiving physical share certificates? Because the process of getting the shares converted into dematerialised form takes anywhere between four to six weeks. Many investors look to sell immediately on listing especially a stock that is up 60 per cent on listing. Of course, if 25 per cent of all investors are barred from trading because they hold physical shares it automatically reduces the floating stock and potentially creates a perfect situation for stock prices to remain artificially high.
The UCO bank shares were issued at Rs 12, commenced trading last Thursday at Rs 19.60 and were already down a shade to Rs 19.40 on Friday. Sebi would do well to check if there is anything unusual about the price. Otherwise, it will have to investigate whether the high number of physical allotments indicates a reluctance to open expensive demat accounts. Interestingly, we learn that listed banks have demanded and received special treatment from Sebi and are allowed to issue physical certificates at the option of their investors. The regulator should check whether this too has played a role in the higher physical allotments in the UCO Bank issue. Sebi executives say that they are looking into the matter.
The Reserve Bank of India (RBI) has yet to wake up to the harassment caused by banks foisting credit cards and debit cards on unsuspecting individuals and extracting payments later. The trick is to send the debit card to account holders assuring them that it is free and then debiting a renewal fee without the approval of the cardholder. While depositors need to be super-vigilant about statements sent out by their ‘trusted’ bank, India’s most aggressive financial institution turned bank is again a jump ahead. It has been couriering credit cards even to dormant account holders and probably also to non-account holders. Acceptance of the card would probably be followed by a bill. But as the delivery person indicated, many target cardholders are not falling for the trick.
Taxman knows not
The newly-constituted National Commodities Exchange (NCDEX) is offering new trading memberships. And since the National Stock Exchange is one of its main promoters, it seems to have picked up all the qualifying conditions and permissions straight from the NSE. One of the conditions is a registration with the excise authorities for payment of excise duty as is charged to stockbrokers. However, nobody has told the excise department to register commodity brokers for collection of excise duty. In fact, they hadn’t even heard of the new commodities exchange.
So, excise officials are turning away brokers trying to submit registration documents until they receive an official notification. Brokers are now wondering whether the brand new commodities trading firms will end up paying excise only because NCDEX copied broker registration rules form the NSE. Otherwise, they may have been spared for a few years before the government realised that NCDEX brokers should also be taxed. -- Sucheta Dalal