Govt, Sebi spar over transfer of surplus funds as Budget 2020 nears 67

The stand-off between the Securities and Exchange Board of India (Sebi) and the Central government over transferring the former’s surplus funds to the exchequer is likely to linger.

Ahead of the Budget, the Centre, which is eyeing these resources to reduce its fiscal deficit, recently sought a status report from Sebi, the market regulator. The government wants to decide on the plan of the surplus transfer in line with the new rule.

“The departments concerned in the finance ministry recently sought details from the market regulator about the reserves to systemise its income and expenses and accordingly make the revenue estimates for the current financial year and also the Budget estimates for FY21,” said a source privy to the development.

Sebi, on the other hand, has yet to comply with the provisions of the Finance Act, 2019, which mandates a 75 per cent cash transfer from its general fund to the government’s books, after creating a “reserve fund” of the annual surplus.

The transfer is proposed to take place after Sebi incurs all expenses mandated under the law establishing it.

Though the amount may not be big enough to help the government bridge its fiscal deficit to any great extent, it is important for Sebi to maintain its autonomy, sources said.

According to the amended law, Sebi can keep 25 per cent of its annual surplus, which should not exceed its annual expenditure in the preceding two financial years. The balance will be transferred to the Consolidated Fund of India. According to officials, Sebi’s surplus was Rs 3,606 crore as of March 31 last year.

Budget 2020: Centre, Sebi spar over transfer of surplus funds to exchequerGoing by these provisions, Sebi might have to transfer around Rs 2,800 crore to the central government in the current financial year.

The norms in the Finance Act have automatically amended the Sebi Act after the Bill was passed in Parliament. However, Sebi has opposed the move after the amendment in the Act, seeking a review.

The regulator is learnt to have sent at least two letters to the Department of Economic Affairs after the decision was made.

In both, the regulator said the proposal was made in haste without consultation and any such decision should be taken by the Financial Stability and Development Council (FSDC).

The FSDC is chaired by the Union finance minister and the heads of all financial sector regulators including Sebi are its members.

Sebi is of the view that its reserve fund is important in protecting the interests of investors. The government move has also been opposed by the Sebi Employees Association (SEA), a brokers’ forum, and many other market participants, who are saying it amounts to an infringement of the independence of the regulator.

An e-mail sent to Sebi did not elicit a response.

Another argument from Sebi’s side is that the new provision is like an additional tax because the regulator levies fees on intermediaries for rendering services but the move to transfer funds would become an additional tax on market participants.

However, the government wants to address the accumulation of huge surplus funds lying with Sebi and other financial regulators.