Sebi mulls higher net worth for registrars

Fallout of Sharepro event; considers minimum net worth of Rs 2 crore

The Securities and Exchange Board of India (Sebi) is considering a steep increase in the minimum net worth requirement for registrar and transfer agents (RTAs).

The markets regulator recently met RTAs, where the issue of raising the net worth to as much as Rs 2 crore was deliberated. Under the current provisions, the minimum capital required is Rs 50 lakh.

RTAs are record keepers for shares and other securities. They also are facilitators for cash transfers such as dividend payouts and a communication channel between a company and shareholders.

Sebi’s move is fallout of the Sharepro fiasco, where the regulator found inconsistencies with the dividend payments. The proposed increase is aimed at ensuring stability and weeding non-serious entities from the business. Sebi had previously raised the requirement nearly five years before, from Rs 6 lakh to Rs 50 lakh.

“Most big players were in favour of raising the net worth criteria. The issue of institutionalising the RTA business was also deliberated,” said a source.

Currently, beside third-party RTAs, some companies handle the RTA function in-house.

Sources said the move also faced resistance from a section, which said such a move would favour the big players. “A steep increase could discourage smaller ones. Only a few can meet a Rs 2 crore net worth requirement. Consolidation is already under way, with big players cornering most of the business at the cost of smaller ones,” said an official with an RTA.

According to Sebi, 74 entities are registered as RTAs. In the said meeting, the issue of strengthening the technology and systems to avoid SharePro-like incidents was also discussed.

In March, at least three clients of Sharepro had made police complaints against the RTA for alleged fraud. During the initial investigation, the regulator had found several discrepancies in the share transfer and dividend encashment services offered by Sharepro. The regulator had come out with an interim order banning Sharepro and asked its 250-odd clients to find an alternative RTA.

The event also made various corporate houses cautious of their existing agents. According to sources, a majority of the companies now prefer to go with bigger names that have an advanced set-up and credible background.

Sebi had also proposed empowerment of depositories to distribute cash benefits like dividends, instead of the RTA. Currently, all the non-cash distributions, such as bonus or rights, are done by depositories; cash benefit distribution is taken care of by RTAs.