SMILE task force advises ECS for IPO refunds

The Securities Markets Infrastructure Leveraging Expert (SMILE) task force has suggested the introduction of electronic clearing service (ECS) for crediting refunds in initial public offerings (IPO).

"It is desirable to make it mandatory for refunds in primary issues to be also by ECS," the task force said in a report.

The task force "" set up by the Securities and Exchange Board of India (Sebi) under the chairmanship of P J Nayak, chairman and managing director of UTI Bank "" has submitted its first report on 'Infrastructure and Process Flows for the Primary Market'. The task force was constituted after the mess in the ONGC sale of shares where allotments and subsequent refunds were mis-handled.

With the ECS facility available at around 45 centres, the Reserve Bank of India is further proposing to increase the availability. ECS might become a reality with real-time gross settlement system (RTGS) also in place now.

The task force has also stressed on the importance of allowing NRIs better access to the primary markets. It noted that NRIs have to face severe logistic issues in participating such issues.

"The process of application is now convoluted with the NRIs having to obtain application forms from syndicate members or brokers to the issue in India, and paying for their subscriptions through their NRE or NRO accounts in India. While this may continue, it is strongly desirable to introduce alternative channels for subscribing to primary issues for NRIs," the report said.

It said NRIs should be permitted to access application forms elctronically and transmit these application forms together with electronic remittances from overseas to a syndicate member or broker in India.

The task force has also come down heavily on the refunds to NRIs saying that it should be standardised. In cities where Electronic Clearing Services (ECS) facilities are available, it has been recommended that these are directly credited through ECS into the bank account, with an intimation to the NRI.