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The R H Patil Chat

R H Patil was everything he was billed to be -- an articulate and impassioned advocate of the National Stock Exchange which he has headed with such distinction for the last couple of years.

The transcript is full of insight.

Check it out.

Archana (Tue Aug 20 19:39:00 1996 IST):


yazad (Tue Aug 20 19:49:28 1996 IST):

Hi guys!! We are waiting for Mr. Patil. 5 minutes to countdown...

yazad (Tue Aug 20 19:50:45 1996 IST):

Hi Archie.

yazad (Tue Aug 20 19:53:38 1996 IST):

3 minutes to zero hour and counting

yazad (Tue Aug 20 19:55:57 1996 IST):

DR PATIL: The NSE index was recently revamped. Now the BSE Sensex has been redone. What was the need for the revamps? How will they serve the investor any better? And do you think there was an element of copycat in the BSE's revamp?

Nikhil Lakshman (Tue Aug 20 19:56:31 1996 IST):

Good evening folks. This is Nikhil Lakshman, editor, Rediff On The NeT. Dr R H Patil is at his office at the NSE in Worli in central Bombay. With him: Yazad Darasha, our business editor, Syed Firdaus Ashraf, our correspondent, and Subhashree, who is a veteran of several Chats, having anchored the Advani, Seshan and Pilot Chats.

yazad (Tue Aug 20 19:56:53 1996 IST):

DR PATIL: There seems to be a personal vendetta you are conducting against the BSE. Comment?

Nikhil Lakshman (Tue Aug 20 19:57:14 1996 IST):

Good evbing, Dr Patil, welcome to our Chat. Thank you for being with us this evening.

Nikhil Lakshman (Tue Aug 20 19:58:04 1996 IST):

Good evening, Dr Patil. Welcome to our Chat. Thank you for being with us this evening.

G Gekko (Tue Aug 20 19:59:28 1996 IST):

Dr Patil, could the NSE have flourished the way it has without the finance ministry's active support?

ROBIN (Tue Aug 20 20:00:00 1996 IST):

Dr Patil, the NSE under your guidance has gone from strength to strength. What is the secret of your succcess?

Manish Shah (Tue Aug 20 20:01:06 1996 IST):

Why the index is below 3500 level? It reflects widespread corruption in Rao's Government. Arrest and attach Properties of Sukhram, Jailalita, Rao, Chandraswami.

ROBIN (Tue Aug 20 20:01:23 1996 IST):

Dr Patil, everybody says India does not really need foreign investment except in the infrastructure sector. Would you agree to a ban on foreign investment in the consumer goods and other sectors?

Manish Shah (Tue Aug 20 20:02:02 1996 IST):

Why the index is below 3500 level? It reflects widespread corruption in Rao's Government. Arrest and attach Properties of Sukhram, Jailalita, Rao, Chandraswami.

Dr R H Patil (Tue Aug 20 20:04:32 1996 IST):

Hello, this is Dr Patil. I am ready for your questions.

G Gekko (Tue Aug 20 20:06:41 1996 IST):

Why are India's capital markets so corrupt? Why is everything so venal? Why is everything so biased against the small investor?

rishi (Tue Aug 20 20:06:52 1996 IST):

Dr Patil, recently the BSE is on a tie-up spree, having tied up with the Delhi, Ahmedabad, and Cal exchanges. do you have a similar plan?

Dr R H Patil (Tue Aug 20 20:07:38 1996 IST):

Manish Shah: The fall in the index is entirely due to the fact that some of the major expectations from the budget did not get realised. The market operators were basically looking for removal of tax on dividend as also entire withdrawal of the surcharge on corporate tax. There was disappointment on both counts. On the other hand, the introduction of Minimum Alternative Tax is going to affect the blue-chip companies as they would be subjected to tax at the rate of at least 12.5 %. Most of these are index scrips and consequently their prices have fallen. In my view, the factors mentioned by you have not affected the market sentiments in any noticeable way.

Dr R H Patil (Tue Aug 20 20:11:40 1996 IST):

To Rishi: The question of tieup comes only when the exchange does not want to open up its membership to people from other cities. NSE from day one has opened up its membership to many qualified aspoirants including members of other exchanges. As of today, NSE has admitted as its members people who are members of 20-odd exchanges in the country. They are our full-fledged members. The NSE arrangement gives them equality of treatment. We do not believe in making them sub-brokers or something similar to that whaich the BSE is contemplating through collaborative arrangements. NSE is a democratic institution and believes in democracy to all those who trade on it.

G Gekko (Tue Aug 20 20:13:08 1996 IST):

Do you think the Indian capital markets can be reformed? If the finance minister asked you to suggest ways to do so, what would you do?

rishi (Tue Aug 20 20:14:08 1996 IST):

Dr Patil, thanks. another query. What do you think it will take our exchanges to match up with the ones abroad, esp those in financial capitals like New York, London, Tokyo? What is our major weakness right now?

G Gekko (Tue Aug 20 20:14:19 1996 IST):

Why does one get the feeling that the NSE often acts like an arm of Shri Dhirubhai Ambani? Your conduct is very arbitrary when it comes to Reliance.

Bharati (Tue Aug 20 20:14:28 1996 IST):

The NSE is getting to be known as a speculative exchange> What are you planning to do to curb this speculative trading?

Dr R H Patil (Tue Aug 20 20:15:07 1996 IST):

To G Gekko: I would say the word corrupt is too strong. A better way would be to say that Indian capital market is not that highly professional and investor-friendly. This is primarily the reason why NSE has been set up. Protecting investors interests is our major focus of attention. As a result, there are no pending disputes of investors vis-a-vis our members. We adopt a time-bound approach to resolve all investor complaints. We hope that we will be able to make a major impact on the Indian market.

rishi (Tue Aug 20 20:17:57 1996 IST):

Dr Patil, a major complaint is that the small-time investor still gets a raw deal in most exchanges (NSE NOT EXCLUDED). What measures are you planning to win over the confidence of the small-time investor?

B Bear (Tue Aug 20 20:19:15 1996 IST):

Sir, do we get the feeling that the capital markets are too dependant on foreign investors. I get the feeling that the Indian market is a bubble waiting to burst.

B Bear (Tue Aug 20 20:20:44 1996 IST):

What is your position on non voting shares? Can the concept work?

rishi (Tue Aug 20 20:21:06 1996 IST):

Mr Patil, the markets are still very down. Why? how long do you think it will take for them to improve?

Dr R H Patil (Tue Aug 20 20:21:37 1996 IST):

to Yazad: NSE has worked out the index in a highly scientific fashion. Six months hard effort has been put into it. To give you a brief idea about the work involved: literally more than 4 billion calculations on Alpha Deck machines were done. We consider this to be the most scientific index ever designed for teh Indian capital market. While constructing the index, we have kept in mind our desire to introduce F&O segment by coming December, subject to SEBI's approval. We intend to introduce index-based futures contracts in the first phase and thereafter options on the index. Serious market observers have already noted that NSE 50 -- called Nifty -- is the best barometer of our capital market. Apparently, there appears to some copycat approach when BSE revised its index. But this is not the first instance where they have copied us. Introduction of computerisation, shortening the settlement cycles, more awareness of investor complaints, quick auctioning mechanism to resolves failed trades, margining system, etc -- these are all similar instances where they have tried to imitate us.

B Bear (Tue Aug 20 20:23:53 1996 IST):

Dr Patil, your

Dr R H Patil (Tue Aug 20 20:24:46 1996 IST):

To Robin: I do not agree with this view. We need foreign investment in every sector including consumer goods industries. So far, the consumer is a neglected lot in our country. He does not have an opportunity to choose from a variety which the earlier licensing regime had denied him. I believe we need foreign investment particularly because that will drive efficiency in all the sectors. It's only then that a growth rate can be stepped up and the widespread poverty alleviation tackled more efficiently.

B Bear (Tue Aug 20 20:25:20 1996 IST):

Dr Patil, do you believe the NSE is a more ethical exchange than the BSE?

rishi (Tue Aug 20 20:26:06 1996 IST):

What are your plans for setting up depositories, something urgently needed.

Bharati (Tue Aug 20 20:26:07 1996 IST):

When are you going to introduce futures and options trading ? When will the depository be ready? and do you think the entire country is ready for these changes?

M Singh (Tue Aug 20 20:26:49 1996 IST):

Good evening, Dr Patil. I have been a\n admirer of yours at the NSE. I was just curious to know where you see the NSE in 2000? does the NSE have a plan for the new millenium? And will it replace the BSE at some stage?

rishi (Tue Aug 20 20:29:17 1996 IST):

Are the SEs shy of future trading due to the Barings crash last year?

Dr R H Patil (Tue Aug 20 20:31:04 1996 IST):

To Rishi: From day one, the small investor is the focus of NSE. Even after 20 months of our functioning, and accounting for nearly 2/3 of trade on all exchanges, as much as 80 % of trade on NSE originates from retail investors. All our rules, regulations have been framed with the small investor in mind. All investor complaints are immediately attended to. The very fact that there are no arbitration cases pending with the exchange is proof of the fact that we take care of investors interests fully. All the same, we are not contented with our progress so far. We are devising new systems/procedures to reach out to investors. We are holding investors seminars to enlighten them about their rights vis a vis the exchange and the members. In short our efforts are to make investors fully conscious of their rights so that they continually come to us whenever they have any problems. Our approach is having significant impact on the functioning of other exchanges because they are finding that small investors are deserting them and flocking to NSE. Competition will mean eventually better service to investors.

som (Tue Aug 20 20:39:27 1996 IST):

please react to the casino charge

Dr R H Patil (Tue Aug 20 20:39:44 1996 IST):

To M Singh: We do have a long-range plan for NSE. We want NSE to become something like a department store for all financial products. We have begun with debt market, but we are conscious that considrable progress needs to be achieved in this area. We know that success in the development of the debt market will hinge on important changes in the regulatory and policy framework. In the equity market we have already surpassed BSE on October 27, 1995. Currently our daily volumes are on an average two and a half times the daily volumes of the BSE. We operate now from 48 cities right from Amritsar n the north to Madurai and Coimbatore in the south. Out of these 48 cities, 32 are non-exchange centres. The NSE trading system works on satellite communication. Hence an order originating from any place in the country gets matched and reported back on the originating terminal in less than 2 seconds, whenever a counter order exists. By the end of the year, we hope to be in at least another 20 cities. Maybe by 2000 NSE should be in at least 200 cities. This way we will be able to create a single vibrant national market with significant depth and price efficiency. We plan to start the derivatives segment by December this year, subject to SEBI's approval. When the country gets into a phase of capital convertibility, the NSE's trading system can be made global in the sense that orders can originate in any part of the globe and matched on the NSE terminals. In short, our long range plan is to integrate Indian capital markets fully with the international capital markets. At that stage, NSE should be able to provide trading in debt instruments, equity, derivatives (both equity based as also interest rate and foreign exchange derivatives). We hope by year 2000, Indian market should be on par with the best global capital markets.

som (Tue Aug 20 20:39:50 1996 IST):

please react to the casino charge

rishi (Tue Aug 20 20:42:19 1996 IST):

som, what is your casino charge??????

Dr R H Patil (Tue Aug 20 20:43:09 1996 IST):

Bharati : The depository arrangements are going on as per schedule. It should be ready with infrastructure by mid-October this year. Thereafter the process of the dematerialisation and creation of depository accounts will have to start. It is planned that at least token trades under depository arrangements should start by this year's Diwali.

som (Tue Aug 20 20:44:15 1996 IST):

Can you tell us when you will be vocal like Damani on the capital market.

Dr R H Patil (Tue Aug 20 20:46:38 1996 IST):

B Bear : I am personally not in favour of non voting shares. It is an antithesis of corporate democracy. Non voting shares protect only family interests who control the company. There is considerable resentment already in the country against the non voting shares. In all probability this instrument will be a non starter, as it may not evince interest from common shareholders.

Dr R H Patil (Tue Aug 20 20:47:33 1996 IST):

Som : It is impossible for me.

M Singh (Tue Aug 20 20:49:50 1996 IST):

Dr Patil, why are you so soft on the Ambanis?

Dr R H Patil (Tue Aug 20 20:53:15 1996 IST):

Som : That NSE is a casino is a typical hostile reaction to the setting up of the NSE. The charge in effect means that there is considerable trade on the NSE which does not result in delivery. The data compiled by SEBI do indicate that delivery ratios on both NSE and BSE are no different. In fact there are many exchages where the delivery ratios are significantly lower at 1.5 % as against NSE's average monthly delivery ratio of around 15%. The delivery ratio will certainly improve when it becomes possible to shift to depository trades. At that stage it would be possible to introduce rolling settlement system on T+5 basis. So long as physical paper exists we will have to live with weekly trading cycles and lower delivery ratios. In any case we can take the horse to the water but we cannot force it to drink. Exchange can provide trading facilities but cannot force the investor to take delivery when he has the democratic right to square off trade during the trading cycle.

P Aisa (Tue Aug 20 20:53:51 1996 IST):

Dr Patil, Good evening. Many Indians still shy away from the stock market because it resembles a racecourse. There is no scientific analysis in most cases and the way the index moves most times defies logic. What can be done to make clean the capital markets?

Dr R H Patil (Tue Aug 20 20:56:53 1996 IST):

M Singh : Stock exchanges derive their rights vis a vis companies from the listing agreements. They cannot do anything beyond what is contained in the listing agreement. There are other authorities like the Dept. of Company Affairs, GOI, SEBI, who have real powers whenever there are any violations in legal and other regulatory areas. NSE would like to adopt a fair approach to all the companies and would not like to pretend to have powers which it does not have.

Dr R H Patil (Tue Aug 20 21:02:44 1996 IST):

P Aisa : One of the major shortcomings of the Indian capital markets is the absence of good equity research available to common investors. Even institutional investors have not given as much in depth attention to this aspect as is being done in efficient markets abroad. Some effort has already begun in this area. Many brokerage firms have made a good beginning but they have a long way to go before they can offer really meaningful and reliable guidance to investors to frame their investment strategies. Part of the improvement is coming about because of the growing role of institutional investors as also diversification in the range of institutional investors, especially after the entry of foreign institutional investors. My hunch is that over the next four to five years, Indian markets should be able to become more rational in their investment decisions.

Dr R H Patil (Tue Aug 20 21:07:30 1996 IST):

Rishi : NSE has plans to intriduce futures trading by December this year subject to SEBI's approval. One of the prerequisites of futures trading is the functioning of an efficient clearing corporation which guarantees settlement of all trades that take place on an exchange. NSE has set up its National Securities Clearing Corporation which guarantess settlement of all trades done on NSE. No other stock exchange is having a similar corporation. Hence they are not yet ready to start futures segment. My own reading of the situation is that market participants are not very much worried because of the Barings incident as many of them know that such things can happen when internal controls are absent in entities which participate in derivatives trading.

Dr R H Patil (Tue Aug 20 21:15:10 1996 IST):

Thank you for being with me. Good night.

Nikhil Lakshman (Tue Aug 20 21:17:08 1996 IST):

Dr Patil, Many thanks for appearing on the Chat. Your responses have been most illuminating. We do hope you will join us sometime again soon. Good night.

Photographs: Jewella Miranda