Safe Deposit

ON June 24 this year, around 3.30 in the morning, eight people armed with choppers and revolvers charged into the suburban-Mumbai offices of MCS Ltd, the country’s largest share transfer agents. Eighteen startled security guards were rounded up, blindfolded and tied to trees. The bandits then broke open the glass doors and decamped with share certificates worth over Rs 50 crore, majority of them being State Bank of India scrips. It was the largest-ever share robbery in the country. 

Share certificates being lost or stolen, transfer of shares inordinately delayed, and the problem of bad deliveries (when shares cannot be transferred due to theft, forgery, mutilation or signatures not matching) have become a norm. The infamous Reliance episode of forged share certificates may have highlighted the mess, but there is no Indian company which isn’t inundated with share transfer queries.

 And now that the Securities and Exchange Board of India (SEBI) has suspended the licence of Reliance Consultancy Services (RCS) to carry on business as registrar and share transfer agents from February 1, 1997, the need for a foolproof share transfer agency will be felt even more. In-house transfer agents of the Reliance group, RCS has been servicing a family of over 10 million shareholders and over 50 million share transfers a year. SEBI Chairman D.R. Mehta categorically announced last fortnight that RCS’ licence will not be renewed after it expires in July next year.

Perhaps the robbery was what triggered the decision, but the victim, MCS, is the first Indian share transfer company to install a VSAT (Very Small Aperture Terminal) network to computerise the process. Imagine: an investor walks into the office of a share registrar and transfer agent with enquiries about the status of transfer of his securities of a company headquartered in some other city or a secretarial official wanting last-minute inputs for the board meeting that’s coming up in a few days. He is able to log on to a computer and get answers on-line. At present, it might take him months to get any information. Though MCS Chairman Arun Agarwal is non-committal about accepting the Reliance group as clients, market sources are almost sure that MCS is the only agency capable of handling the volume. "Now that they have acquired VSATs to make their operations on-line, the balance is definitely tilted in their favour," predicts one RCS employee. Initially, MCS firmed up VSATs in Mumbai and Delhi, with another one at Vadodara being installed. The company’s other offices will be hooked up soon.

The satellite link-up has allowed the company to decentralise a large part of its operations. Consider the recent Industrial Finance Corporation of India (IFCI) bond issue: because of power problems at Delhi, MCS could process only 10 per cent of the data in Delhi. But using the VSAT network, it was able to transfer data between Mumbai and Delhi on a regular basis, so its Mumbai office could share Delhi’s work burden. Says Agarwal: "We had processed the ICICI 1995 bond issue from Madras. At that time we had to fly people eight times between Mumbai and Madras. However, using VSAT, not one person flew for IFCI between Mumbai and Delhi." 

Adds K.D. Agarwal, chairman of IFCI: "Our officials were able to collect 6.3 lakh applications from 430 centres in eight days and MCS processed the applications in the next six days, thereby enabling us to do the work in 14 days for a collection of more than Rs 1,200 crore." This, as Agarwal says, is only the beginning. "The real benefits will show when the National Securities Depository Ltd (NSDL) starts functioning," he observes.

On November 8, 1996, when NSDL, a depository promoted by the National Stock Exchange (NSE), Unit Trust of India and Industrial Development Bank of India, is scheduled to start functioning, information of all share transactions of NSDL members will be sent to the depository at the end of the day, thanks to a VSAT network put in place by NSE and NSDL. The NSDL will in turn send the data via its VSAT network to the Mumbai offices of transfer agents like MCS.The registrar can send this data to its offices through its own VSAT network.

  Thus, in seconds, the books of all the players in the loop—NSDL, registrars like MCS and their clients—will be updated. "We’ll give our clients information periodically if need be—for example, State Bank requires information weekly, so we will ask NSDL to download SBI’s data weekly," Arun Agarwal said.

Says Sudipta Sen, CEO of Comsat Max, a leading VSAT service provider: "The single biggest hurdle to enhanced foreign portfolio investment in the country is outdated settlement procedures and delays in share transfers. The combination of state-of-the-art computer systems in stock exchanges, depositories and share transfer agents can solve this problem." 

Comsat Max, he points out, has been involved in providing satellite communications to Citibank and IndusInd Bank. "We believe that given the competitive business environment which requires security, reliability and consistency in terms of response time, satellite communication is going to be the key to providing an edge to service in financial and banking circles." Now, India attracts only 0.04 per cent of the total worldwide funds available for investment. Electronic trading will go a long way in improving that pitiful statistic.