Starting April 1, physical shares to take place in dematerialised form

Moves to ease out physical share certificates have borne some fruit, but majority of the listed companies still have shareholders having their stake in physical form. 

A Business Standard analysis showed that 98.6 per cent of companies had shareholders who held their stocks in the form of physical share certificates. 

Dematerialisation allows shares to be held electronically. This is the preferred mode of holding shares today. But some people prefer to hold physical share certificates — a hold-out from the time electronic accounts were not in vogue, people say.  Such share certificates account for over Rs 2.9 trillion in value as of December-end, shows an analysis of data from corporate tracker Capitaline. 

This is down from Rs 3.8 trillion in the previous quarter. The analysis looked at 927 company instruments as of December 2018, including shares with differential voting rights. A total of 914 had, among them, some holding in physical form. 

This may not have changed in the latest quarter either, at least going by preliminary data. An analysis of 21 companies, for whom shareholding patterns are available in March, shows that 19 still have some shareholding in the physical format.

Vinay Agrawal, chief executive officer of Angel Broking, said that there has been some activity in the recent past, with a lot of people looking to make the change in light of a recent deadline. 

“We have seen a huge increase in the number of people rushing to convert their physical shares to the demat form,” he said. 

The Securities and Exchange Board of India (Sebi) has pushed April 1 as the deadline for conversion to demat form, if one wants to transfer shares. “The Board, on March 28, 2018, decided that except in the case of transmission or transposition of securities, requests for effecting transfer of securities shall not be processed unless the securities are held in the dematerialised form with a depository. This measure shall come into effect from April 1, 2019,” said the March 27, 2019 note. 

The regulator further clarified that the shares could still be held in the physical form, though they cannot be transferred in the ordinary course of business without being converted into the demat form. 

However, the transfer of shares in some cases, such as inheritance, can still take place without dematerialisation. 

Pavan Kumar Vijay, founder and managing director of legal and financial consulting firm Corporate Professionals India, said that many people were often unaware of such impending changes and the subsequent need to convert their shares into demat form. 
 

More effort may be required to ensure there is sufficient awareness. “Government should…publicise (the change) properly,” he said. 

In many cases, the value of these shares may not be high for the individual shareholder. They are inherited. The current holders may have continued to hold them in physical form because of efforts involved to undertake efforts towards dematerialisation, according to Agrawal.

Firms with shares still held in the physical form span sectors including oil and gas, fast moving consumer goods, financial, technology and auto. They include both public and private sector companies.

Minutes of Sebi’s previous board meeting have indicated that the nudge towards dematerialisation is to prevent fraud and transfer involving physical share certificates.