Sebi proposes allowing depositories to distribute cash benefit

New Delhi: To make it easier for investors to get dividend and redemption payments on a fast-track basis, regulator Sebi on Monday proposed new norms to allow depositories to distribute all securities market related cash benefits.

A final decision on the issue will be made after taking into consideration the views of all stakeholders. The regulator has sought public comments till May 5.

The move will help bring Indian markets at par with most of the developed markets where depositories usually distribute cash benefits to the investors.

Currently, depositories only handle non-cash benefits like bonus and rights shares issued by the companies, while cash benefits are handled outside the depository system.

Depositories provide details of shareholders and bondholders including name, address and bank details to the respective issuer companies which, in turn, arrange for distribution of cash benefits.

This leads to some delay in the distribution of cash benefits, as the issuer companies distribute such benefits after obtaining information from the depositories only.

Issuing draft papers, Sebi said: "All cash benefits including dividend, interest and redemption proceeds may be distributed by depositories in the case of all securities held in demat form. Issuers may be required to transfer the total amount due to clients of each depository to that depository, which is also the registered holder of such securities. The depository in turn will distribute the same to its beneficial owners.

"In respect of securities held in physical form, the issuer company may continue to handle the distribution of cash benefits."

Depositories, which are like banks in the securities market, hold securities such as shares, debentures, bonds, government securities and mutual fund units, of investors in electronic form at the request of the investors through a registered Depository Participant.

Just like banks hold the funds for their depositors, the depositories hold the securities of investors in an account. There are two depositories registered with Sebi -- National Securities Depository Limited (NSDL) and Central Depository Services India Limited (CDSL).

The Securities and Exchange Board of India (Sebi) said that the proposal will benefit investors as well as depositories.

Sebi said investors will be able to get a consolidated statement of all the cash benefits due to them and credited, along with all details such as announcement date, dividend rate, amount due, date of credit to bank account, bank transaction reference among others.