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FM Arun Jaitley asks market-makers to improve credibility, integrity

NEW DELHI(PTI): Finance minister Arun Jaitley on Saturday called for improving the credibility and integrity of all market participants, including the regulators and corporates,to channel more household savings into the system.

Finance Minister Arun Jaitley

“Though we have covered a reasonable distance over the past two-and-a-half decades in terms of financial market development, there is still a long way to go in terms of market depth. We need to improve the credibility and integrity of our market institutions, the regulators, corporates and other market-makers to attract more retail funds into the market,” Jaitley said.

Addressing an NSDL (National Securities Depository) function on Saturday evening, he noted that there has been considerable amount of institution-building and considerable amount of capacity-building in the past few decades in our financial markets.

“But if the economy grows at the pace we are striving it to achieve, then we need to massively improve these capacities and their credibility.”

The event was to celebrate NSDL, which is the largest depository in the country with over 89% market share of the demat securities and the third largest in the world in terms of volume, crossing the value of stocks under its custody at $1.75 trillion or Rs 115 trillion.

The minister said, though in comparison to most other nations, our household savings at 28-29% is good, going by our conservative nature of spending, we can still have a considerably high level of savings and a good portion of that can be brought into productive investments.

“But this to happen, we need to have more credible market institutions, regulators, depositories, corporates and other market-making bodies as also better quality of service from them. They also need to improve their integrity,” he added.

Stating that while most of the world is facing a gloom scenario, he said “their gloom is our boom”, though he noted that exports are a concern for the government. He also expressed concern over the rural stress following two successive years of poor monsoons, which brought down the spending power of the rural folks.

On the rising bad loans in the banking system, which crossed 13% of the system in the June quarter, he said this is reflective of the stress in some key sectors of the economy like power, steel and other metals and expressed the hope that the recent measures will be fruitful.

On the reform measures of the Narendra Modi government, he said that unlike in the past today “the number of obstructionists to reforms are very few and that if we don’t initiate reform measures to attain higher growth levels it will be unfair on our future generations.”

Addressing the gathering, which included RBI deputy governor Urjit Patel, Sebi whole-time member RK Agarwal, and many bankers and market participants, NSDL chairman CM Vasudeva said the depository achieved this milestone of crossing Rs 115 trillion in value of the stocks under it custody in just 19 years, during which time it rose more than 10 times.

NSDL was set up in 1996 and it completed dematerialisation of shares by 2002 and introduced the investor-friendly T+2 settlement system (settlement two days after the trade) from 2003.

He said this is a considerable achievement as the European Union has just started the T+2 system while the US, which is the world’s largest market with over $37.2 trillion of market cap, is still only talking about this.

NSDL managing director and chief executive Nageshwar Rao said in 19 years since the depository came into being, only 2% of the shares are in physical format today.

He said today NSDL services over 1.41 crore investor accounts through its 269 participants from over 18,400 locations spread in 1,748 cities/towns.

In terms of daily transactions too NSDL at 240 million trades, is the No 3 in the world after China’s 7.4 billion and the US’ 323 million, Rao said, adding in terms of cost, NSDL is the cheapest at Rs 4.50 for any debit and no fees for credit.

Sebi’s Agarwal said, despite the many milestones our market has achieved in since the June 1991 liberalisation process, the market depth is so low, (in spite of being the ninth largest in terms of m-cap) with about just 2 crore demat accounts.

He said this can see a dramatic improvement only if the FY16 budget promise of single demat account for all financial sector investments are implemented and not just stocks and noted that a whopping 90% of the nearly $2 trillion market cap is being held by just three lakh demat accounts. This need to change.

He also noted that the NSDL’s $1.75 trillion of assets under custody is only of securities and not corporate bonds, which is the case with any other depository elsewhere in the world.

He also rued the fact that only our markets could attract only $23 billion out of the $40 trillion pension funds sitting around the world, which considering the huge infra investment the economy needs over the next decade is a good avenue for fund raising.

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