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Journalism of Courage
MUMBAI, July 26: The National Securities Depository Ltd (NSDL) is planning to introduce a system of electronic payment of dividend warrants of companies which are participants of the depository.
According to C B Bhave, managing director of NSDL, around 90 major Indian companies have already become participants of the depository and more companies are likely to join the system in the near future. These company shares have already been dematerialised (converted into electronic form from physical form) and the warrants of dematerialised shares can be credited to the account of the shareholder through his Depository Participant (DP).
There are around 30 DPs also associated with NSDL throughout the country. As more companies become part of the depository, it will be easy to make dividend payment through the system. The electronic mode of dividend payment will help the investors from fraudulent encashment of dividend warrants and theft during postal transit. The relationship between a shareholder and the depository is through the depository participants. The dividend warrants can be electronically encashed to the bank account of the shareholder through his DP. The DP will act as a link between the companies and shareholders through the depository.
However, NSDL is also confused over another problem which may arise in future in implementing the electronic payment of dividend. As long as the tax on dividend is removed, there will not be any problem in electronic payment of dividend warrants. But what will happen if a future finance minister decides to tax dividend income once again. “In such a situation, we will have no option,” Bhave said.
NSDL had earlier proposed a scheme to the RBI to introduce electronic payment of dividend to investors through the NSDL, the complex structure of tax deduction at source was a major deterrent for the introduction of the scheme. As the Finance Minister has abolished the tax on dividend in the last union budget, NSDL has once again revived the proposal. “In order to avoid tax payment, investors break their investment in such a complicated manner that tax deduction at source becomes a difficult task for the computer system. Therefore, we kept the proposal in the cold storage,” Bhave said.
It may be recalled that the Reserve Bank of India (RBI) had instructed the public sector banks to facilitate dividend payment through the bank transactions and credit the amount directly to the shareholders account. However, there has been a public outcry as banks started taking heavy service charges on dividend payments.
The whole problem started when the number of fraudulent encashment of dividend warrants started increasing a few years ago as the postal staff colluded with the scamsters who diverted the dividend warrants sent to investors. With the help of bank staff, scamsters opened fake accounts and fraudulently encashed the warrants. The RBI sought the help of public sector banks to resolve the problem, but banks were reluctant to do the business as they do not have sufficient staff strength. During the peak season, the number of warrants issued is so large that public sector banks find it difficult to handle. Hence the RBI has been encouraging the electronic mode of payment which will skip all intermediaries.
