Whose depository account is it anyway?

HLL explains that once an investor has dematerialised his shares, he virtually ceases to exist in its books except as an entry he no longer has distinctive numbers or afolio number, since his shares become totally fungible. At book closure, the NSDL sends it a list of shareholders who have to be paid dividend and NSDL8217;s business rules mandate that if the list includes a bank account number then the number has to be printed on the dividend warrant.

On checking with NSDL, its senior officials insist that dividend would have been credited to Sopariwala8217;s HDFC bank account only because he had put it on his application form while opening a demat account. True. But that account number was meant to enable HDFC bank to debit his account for custody fees and other charges and not to corner his dividend.

In fact, he had opened a savings account with HDFC Bank and maintained a minimum balance only because he was compelled to do so. Sopariwala went back to HDFC bank to double-check what the application form had said, and sure enough there was no specific permission sought for credited dividend to the account. Clearly the bank sent his account number to NSDL knowing that dividendpayments too would be issued to that account number.

Does this not amount to cornering of dividends? HDFC Bank officials told Sopariwala that the form was unclear and was being changed. HDFC Bank however informed NSDL that after SEBI issued a directive asking bank Depository Participants DPs to stop co-ercing investors into opening savings accounts. It has sent out a circular dated May 22 to all its investors, informing them that they could change the bank into which dividend was to be credited. Incidentally, Sopariwala has not received the circular nor did bank officials inform him about it when he went to meet them.

Does this suggests that it was always part of the game-plan of bank DPs to use the depository accounts and the savings accounts linked to them to corner dividends? But HDFC Bank is not the only one indulging in such a practice. Clearly, SEBI needs to follow up on its directive by ensuring that DPs allow investors to choose the bank to which their dividends will be credited.

Theconfusion does not end here. Companies also seem completely confused about how to treat investors who have dematerialised their shares. Let8217;s go back to Sopariwala and his scrips. Glaxo, for instance, has simply ignored the HDFC bank account provided on NSDL8217;s list and has stuck to Sopariwala8217;s pre-demat instructions to credit the money to his regular bank.

Infosys Technologies, the first Indian company to list on Nasdaq, has also ignored the bank account on NSDL8217;s list, but it sent out specific letters to investors asking them whether they would like dividend electronically credited directly to their bank accounts. Since Sopariwala failed to answer that letter in time, the dividend warrant has no account number at all.

Sopariwala is only one illustrative example of the confusion in switching over to a new system. It shows that companies are as confused as investors.

A large number of companies are yet to mail their dividend warrants, and it is safe to assume that the situation will have to beclarified before the depository system stabilises. A large number of investors continue to find it difficult to grapple with the change to paperless trading. Many investors have refused to dematerialise their entire holding; some have preferred to deal in small trading lots simply to avoid opening demat accounts; others worry about whether their accounts will vanish if the Y2K bug strikes computers at the end of the year.

All this does not mean that the regulator should slow down the spanking pace of dematerialisation set by the NSDL or the addition of new companies to the system. India already lags far behind the rest of the world and need to make haste to catch up. However, it is clear that a lot more hand-holding of investors is clearly required. One thing that should certainly be ensured is that intermediaries such as the DPs do not derail the switch over to dematerialisation by being completely focussed on their own profits. So far, SEBI8217;s swiftly issued directive to DPs has been a step in the rightdirection. It now needs to clarify the rules to companies and ensure that Depository Participants do not add to the confusion.

Author8217;s e-mail:suchetadalalyahoo.com