The Pioneer takes a close look at the personality of the newly appointed head of SEBI, the watchdog of the country’s capital markets
For a person who is publicity-shy. Devendra R Mehta, the fourth chairman of the Securities and exchange Board of India (SEBI) has opted for a high profile job. The fact that he was been under the constant glare of arc-lights ever since he joined his post last week has apparently caused discomfiture to Mr. Mehta: “I am very uneasy at this constant public exposure. I am a civil servant and believe me; I had never expected this kind of media glare and attention. I am not scared about tackling the problems in SEBI. What really scares me is the daily public security”.
The soft-spoken Mr. Mehta, who is a career bureaucrat from the Rajasthan cadre of the 1961 batch of the Indian Administrative Service, is more comfortable conversing in Hindi than in English. He has jointed SEBI after a long stint in the government where he served as the Chief Controller of Imports and Exports in the Commerce Ministry (later redesignated as the as the Director General of Foreign Trade), Additional Secretary (Banking) in the Finance Ministry, Controller of Capital Issues and Secretary to the Chief Minister of Rajasthan.
He was earlier Deputy Governor of the Reserve Bank of India. Mr. Mehta has also served on a high-powered committee on stock market reforms set up under G S Patel in 1985-86.
First, what made you opt for the SEBI Chairman’s job? Did you ask for the job or were you offered it?
I have a made it a point in my life not to ask for any job. I was offered the job and I did not refuse it. I was in the RBI and enjoyed my stint there for two years two years and three months. That was the most creative period in banking history. Indeed, it was very, very creative. A large number of changes took place. After the adoption of international norms (of capital adequacy), many areas like asset classification, provisioning etc appeared to be in a bad shape. Banks were showing huge losses of hundreds of crore rupees. For example, Indian Overseas Bank incurred a loss of Rs755 crore. Syndicate Bank had a loss of approximately Rs 600 crore. This kind of situation does not prevail now. In fact, the current year may show a substantial improvement in the profitability and working of banks. If the history of banking is written. I am sure this period would be recorded as a time when a great turnaround took place. It was a great opportunity to be associated with the banking sector at such a juncture.
A similar kind of situation now exists in the capital market; a creative situation of sorts exists at this point of time. I was associated with trade policy reforms and my current job in SEBI offers great opportunities. I am attracted to it.
Would it not have been better if you had continued your involvement in the banking sector, thereby consolidating what you had achieved?
I thought at this point of time, the capital market offers more opportunities. If, two years ago, a similar offer (to head SEBI) had come my way, I would have preferred to remain in the banking sector. Right now, the capital market in the country is in a formative stage. Many things have to be done; laws have to be enacted and so on. The situation is interesting.
What are your priorities at SEBI?
My priorities of course, the investor and what we can do for him. Next comes the issue of how to develop the market. We are trying to identify the steps that we need to take urgently. Some steps can be taken immediately while others would have to be considered at the board level.
It has been just seven days since I joined SEBI. I believe in a participatory style of management and therefore, I am trying to get in touch with various groups that are associated with the capital market. I held a meeting with senior SEBI officials and asked them for their views. I later met the investors’ association, which is registered with SEBI. I have just completed a meeting with representatives of 22 stock exchanges all over the country. I will be meeting the representatives of the Bombay Stock Exchange. I have other meetings lined up. By the end of this month, I will have met most of the relevant people. I have found these meetings very useful
Because of the divergent views that have been expressed.
Within a day of your assuming charge at SEBI, you appointed a three-member committee to look into the problems relating to forward trading. Do you think forward trading is necessary for the development of the market? Is badla also necessary?
Forward trading has been projected as one of the problems affecting the capital market. The easiest way to find a solution is to obtain expert opinion on the subject. Let us see what the expert committee’s report says.
You said forward trading has been “projected” as a problem. Personally, do you think it is a problem?
I have an open mind on forward trading. Many experts say the absence not be a problem. I do not agree with this view.
What about badla? Will it be reintroduced?
I have never mentioned anything about badla. What I am saying is that some kind of carry-forward mechanism is necessary. Even the March 1994 order talked about 90 days’ carry-forward of transactions under certain conditions. Let us see if these conditions are workable or not. That is the basic idea.
Do you think the carry-forward system will improve the liquidity in the market?
That is what the experts are saying let us see.
What are the steps that SEBI will take to improve the liquidity in the market?
Carry-forward transaction is one-step. In terms of money, we are requesting the RBI to increase the limit on the quantum of loan able bank funds to brokers. In terms of stock lending, there are some tax angles that are involved which the Government of India is examining.
It is better contended that your move to set up an expert committee on was a smart one. If the committee recommends a positive decision, you will get credit for it. If not, the committee gets blameâ€¦.
(Smiles) personally, I think that some kind of carry-forward system that is workable is necessary. However, certain conditions have to be met. For example, what should be the margin, whether squaring should be allowed and soon.
But do you rule out the re-introduction of badla?
Badla not only involves a carry-forward system but there is also a financing element. Now the question is whether you should have an alternative financing arrangement or whether the earlier one should continue. Let us wait for the committee’s report. The stock exchanges have given their view; SEBI has given its own view. Let us see where the gap is.
Coming to the issue of bank financing, a very insignificant quantum of bank funds actually go towards financing market intermediaries and market makers. What is the problem?
The RBI had issued an order relating to bank loans for market maker some months ago. But I am not too sure if there are too many market makers. In 1986, the RBI had issued a circular that brokers would be loaned money. No upper limit was prescribed. Theoretically speaking, even if the requirement of a concerned broker is sizeable, the money can be given. Somehow, banks have not been giving such loans, especially in the post-scam period. The suggestion was that the RBI should revise its earlier policy with some marginal modifications in the changed situation.
All said and done, the brokers are still not getting money. Are bankers scared of loaning funds to brokers?
No. There has, however, always been a feeling that broking means speculation.
You were in the banking sector; did you too share such views?
No. My point is that we are not instructing banks to release funds for brokers. Each application will have to be considered on merit. The banks should be satisfied about the purpose, need etc.
Some weeks ago, the country’s stock markets were displaying volatile fluctuations. In the wake of the results to the Andhra Pradesh and Karnataka assemblies, the BSE sensitive index nosedived. Why there is a panic reaction the moment there is political instability? Do you think our market is too shallow?
Please understand that where there is a market, market sentiments will operate. May be the market is not very deep.
FIIs (foreign institutional investors) too indulged in panic selling. Do you think the Indian market is being overly influenced by the activities of FIIs?
What, according to you, should be their role in the market?
If you look at the overall position, the total investment of FIIs has been increasing, not decreasing. Yes, their investments have not been increasing as fast as people thought it would. In February, FIIs have invested more than in January. In any case, investments by FIIs have not been that much; they are just like other players in the market.
The National Stock Exchange(NSE) is going to offer stiff competition to the BSE in the future. BSE officials have already expressed concern about fragmentation of funds once the NSE increases its activities. There is also the perception that SEBI favors the NSE vis-Ã -vis the BSEâ€¦..
I am not guided by what anyone says. SEBI is a regulator and it does not go by the opinions of the regulated (namely, the stock exchanges). There is no question or favoritism. If anyone breaks the rules, they will be dealt with strictly.
In the past, many investors have been misled by the false claims put out by companies raising funds through capital issues. The issue of M S Shoes is a recent example of this kind. How do you intend to deal with such made to mislead and dupe small investors? If SEBI only holds merchant bankers responsible, will that, be enough to solve the problem?
We are still looking into this matter. Merchant bankers are just one aspect of the problem. Give us some time. We will initiate systematic action. Some action surely has to be taken.
How do you intend restricting the number of merchant bankers?
Look, many merchant bankers who are listed do not operate. We will make it mandatory for listed merchant bankers to operate. Secondly, we will make the norms tougher. Some people will get weeded out. In future, the conditions of entry might be made a little more restrictive.
Many senior and middle level SEBI officers have moved to greener pastures in recent months. Many others are apparently contemplating moving. How do you propose to retain talent in SEBI?
Let us see what can we do. We will have to think of some measures.
Will you raise the emoluments of the SEBI staff?
I do not know whether that can be easily done in a public organization like SEBI. However, we will have to find some solution.
Recently, SEBI ordered that an enquiry be conducted into the working of the registrar of the Unit Trust of India (UTI). Will the UTI be treated on par with other mutual funds by SEBI?
It is legal problem- the UTI has its own act and SEBI has its own act. The problem has arisen because there are certain conflicts between the two acts. Let me study the problem.
You mentioned earlier that you are scared of the publicity that goes with your job. Do think your tenure as SEBI Chairman could leave a permanent mark on your career?
I have been in public service for 34 years now and this will be my last job, You act honestly and you see things in a paper perspective. You do not have personal interests. I have not dealt in shares. I do not foresee any problem.
You mean to say you have never bought shares in your life? What about you family? Have they invested in shares?
Yes, I have totally kept off shares. Somehow, I think it has been a good thing, especially when one sees others who have made investments. (Laughs.)
You could have become a lakhpati during the Harshad Mehta boom. Don’t you regret missing a golden opportunity when you could have made money?
Not at all (laughs again). Even the retirement benefits that I am going to get will not be invested in shares, not even in the Unit Trust. I have decided to invest whatever I get in the public provident fund for retired government servants.
Are you afraid of investing in shares?
First, how much money does a government servant make? It is only now that I would be earning some money. Not a very big amount, though. Yes, there would be a conflict of interest if I invest in shares. Besides, nobody in my family has invested in shares. After retirement, I will be getting what are called terminal benefits. If all of it is added together, I will be earning as much as I do now. I also have a house in Jaipur, which I have rented out a present. I do not eat non-vegetarian food. I do not drink or smoke. My needs are limited. What more could one want?
You have stated that SEBI’s top priority will be protecting the interests of small investors. However, the feeling among many small investors is that he is the least protected. The minimum amount that he can invest has been raised. Mutual funds are not always attractive and then there is the debate on proportionate allotments of sharesâ€¦..
There is an exercise, which is currently going on. We are thinking about whether proportionate allotment should continue or whether the policy should be changed. Then we are thinking about whether we can have investor committees in different places. There is also question of selling grievance quickly. Various issues are involved. Please give us some time.
There have been problems relating to default of payments by leading brokers in the BSE. Two brokers recently defaulted and if the market grapevine is to be believed, more are expected to follow. What will be SEBI’s course of action?
I have talk to the BSE authorities as well as brokers. Give me sometime.
Barings was a venerable financial institution, which had the Queen of England as one of its customers. Yet, one 28-year-old dealer in Singapore was able to ruin the fortunes of the bank and virtually destroy it. Do you think such a thing can happen in India?
We are managing our affairs in a far more prudential manner. I have a difference of opinion in this regard with some of my colleagues. I say that we should strengthen our institutions based on our own experience instead of copying some other countries. Certain so-called experts claim that the systems abroad are very good. What happened to the systems? Did the systems help save the bank? Perhaps we in India are not always very quick or fast. Still, despite such a deficiency, this kind of thing (the Barings episode) is unlikely to happen in this country.
Not many people here know of your association with the Bhagwan Mhavir Viklang Samiti. Could you tell us something about it?
This is something, which is close to my heart and soul. SEBI is just a job. The Samiti helps in the distribution of artificial limbs, especially the Jaipur foot, to the physically disabled. We have branches all over the country and all my free time is devoted to the samiti. I intend to work full-time for the organization after I retire. So far, the total number of beneficiaries has been 45,000. This is really the one mission I have in my life.
Did you get interested in the Jaipur foot because you are a resident of the city?
No. In 1969, I met with a serious accident and broke 40 pieces of bone in my leg. Doctors felt I would not survive. Then they said that my leg would have to be amputated. I cannot bend my leg. I remained in hospital for five months. The next two years were terrible. That was the time the Jaipur foot was being developed. In 1975, when I got an opportunity, the society was set up with the help of like-minded individuals. I was the secretary of the society. Later, I resigned the post as I thought it could conflict with my official duties. I visit Jaipur every month. The occasions I go to Jaipur in my private capacity. I go to the society. It satisfies my soul and has given meaning to my life.
Little is also known about your involvement in another organization, the Prakrit bharti Academyâ€¦..
We publish books. So far, we have published 170 books. The books have been reviewed in different parts of the world. Some of them are in English, Prakrit and even Tamil. We translate books from Prakrit. I am interested in Indian culture, history and I like what I am doing.
Considering fact that your interests lie in charity and history, are you really a man of finance? Should you heading SEBI?
(Laughs yet again.) I told you before that this is just a job for me. Even if I look at it emotionally, let me assure you that my work at the RBI was emotionally fulfilling.