The Securities and Exchange Board of India (Sebi) is considering a proposal to enable distribution of cash benefits by companies among their investors through depositories.
In a consultation paper, the market regulator on Monday proposed that all cash benefits, including dividend, interest and redemption proceeds, may be distributed by depositories if the securities held by investors are in dematerialized form.
At present, cash benefits are distributed directly by issuer companies to the investors, mostly through their registrar and transfer agents (RTAs).
Sebi proposed that issuing companies could transfer the total amount due to their clients to the depositories through which the clients deal in the securities market. The depositories in turn could distribute the same to beneficial owners.
In case the securities are held in physical form by an investor, the issuer company may continue to handle the distribution of cash benefits, the paper said.
By allowing depositories to carry out cash benefit distribution among investors, Sebi said, investors will benefit as they will be required to maintain only a single record of all cash benefits.
Sebi said investors will be able to get a consolidated statement of all the cash benefits due to them, along with the details of their announcement dates, dividend rate, amount due, date of credit to bank account, bank transaction reference and so on, if depositories are allowed to distribute the benefits.
“Demat account statement can thus become a single record of all details with respect to cash benefits such as entitlement of cash benefit, details of credit received in bank account, tax deducted at source, etc.,” the Sebi paper said.
The proposal, according to Sebi, will also shorten the turnaround time for receiving cash benefits since majority of cash distribution will be carried out in electronic form.
On the other hand, the proposal will also help the issuers by relieving them of the task of maintaining separate infrastructure to maintain cash benefit information.
At present, every issuer appoints a banker for distribution of cash benefits and sends communication to each shareholder about credit of cash benefits separately. Sebi said that if cash benefit distribution is carried out by a depository, there may be economies of scale since all the relevant information of cash benefits will be available in demat account statements sent by depositories to their investors.
