Taking stock of Sebi

A Game Changer’s Memoir

G N Bajpai

Portfolio Penguin

347 pages;Rs 599

Today the Securities and Exchange Board of India (Sebi) is held in reasonably high esteem. Its recent reforms are widely credited with having galvanised the large-scale participation of retail investors in mutual funds. But things were not always so hunky-dory. When the author, then serving as chairman of the Life Insurance Corporation of India, was asked to take over as Sebi chairman, its prestige had taken a severe battering in the wake of a stock-manipulation scam, locally known as the Ketan Parekh scam. In this book, Mr Bajpai recounts how he pulled the regulatory body out of that mess. 

The author writes with endearing candour about the doubts that assailed him initially over whether he was up to the task. In the introduction, he also explains why he waited for more than a decade to write his memoir. The risk in waiting, he says, is that the events of the past may not have the same salience in the minds of many readers today. Nonetheless, he deliberately allowed himself this cooling period to be able to take a more dispassionate view of the events of those times. An honourable course, one would say, but likely to find few takers in an age when the dominant credo is to make hay while the sun shines. 

A regulator’s job entails standing up to a variety of pulls and pressures exerted by vested interests. Mr Bajpai shares several examples of how he dealt with them. When the dividend distribution tax (DDT) was introduced in the 2002 Budget and companies tried to circumvent it for at least the first year, he thwarted their efforts. The disinvestment of ONGC in 2003-04 was another instance when he had to take a firm stand, this time against investment bankers. A bidding process was followed to choose the investment banker, and the lowest bid came in at 7.5 basis points. The mandate was given to a consortium of bankers. Having bid at low prices because all of them wanted to win this prestigious issue, the bankers then began to clamour to raise the fee. This was denied. Then they proposed that a prospectus must be produced, for which they would charge a fee of Rs10 million. Again, the regulator had to deny them this chance to make a buck, since a prospectus is required only for an initial public offering (IPO) or a follow-on public offer (FPO), and this was neither (it was only a stake sale of a listed company).

A markets regulator often does not have the luxury of time to make a decision. One hair-raising instance Mr Bajpai describes pertains to the events of Bloody Monday. The market reacted negatively to the news of the United Progressive Alliance coming to power with the support of the Left parties, and tanked on May 17, 2004. Circuit breakers were applied and trading halted, not once but twice. The question then was whether to reopen the markets for a third time and risk a bigger fall. As chance would have it, Mr Bajpai was in Jordan for a conference and had only 30 minutes to decide. After weighing the pros and cons, he decided to go by the rule book and reopen. Thankfully, the markets recovered. When taking decisions under great pressure, the best course, according to the author, is to base them on sound principles. 

Many of the initiatives Mr Bajpai took during his tenure are described in detail here. He tried to reduce the massive backlog of cases at Sebi. The settlement cycle (number of days after which the buyer receives delivery of shares) was reduced. Sebi also raided brokers’ offices to curb dabba, or off-exchange, trading and took steps to reduce the misuse of participatory notes, through which overseas investors can trade in the Indian stock market.

Mr Bajpai’s memoir will be useful to anyone interested in a history of Sebi’s growth and evolution. Many readers will also find in it a useful guide on how to manage an organisation. What should you do to stabilise an important institution, especially one that is in the intensive care unit? How does a leader go about boosting employee morale? Once the situation has stabilised, how does he assess the organisation’s strengths and weaknesses, and chart the best course for it? A Sebi chairman gets only a limited tenure and must prioritise what he wishes to achieve within it. 

After retiring as Sebi chairman, Mr Bajpai headed a committee that produced a landmark report on how the National Pension System’s reach can be enhanced. Recently, his appointment to the reconstituted IL&FS board was opposed by proxy advisory firms because of his association with companies like Kingfisher Airlines and Financial Technologies, and he resigned on November 1. Nonetheless, his place as an institution builder is assured.