The Sebi chairman is learnt to have met Finance Minister Nirmala Sitharaman earlier this week on the issue.
“Two provisions — one related to the surplus transfer and the other related to seeking prior approval from the finance ministry for raising expenses — haven’t gone down well with the markets
regulator. The provision is under review,” said an official, requesting anonymity.
Another argument from Sebi's side is that the new provision is like an additional tax.
“Sebi levies fees on intermediaries for rendering services but the move to transfer funds would become an additional tax on market participants,” said another person aware of the development.
Sebi’s general reserve was estimated at Rs 3,500 crore as of March 2018 and Rs 3,800 crore in March 2019, according to sources.
The Finance Bill proposes a 75 per cent cash transfer from the Sebi’s 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.
Going by the provisions, Sebi might have to transfer around Rs 2,800 crore to the central government in the current financial year.
Finance ministry sources said the Department of Economic Affairs’ (DEA's) idea behind the move was to “address the issue of accumulation of huge surplus funds” with Sebi. The DEA had checked with the law ministry, which felt the funds received by Sebi “are public money and all public money received on behalf of the government would be part of the public account”.
Sources said it had been a long-pending demand of the government to transfer surplus funds to the public account; Sebi had not agreed. In the past six months, the DEA had apparently held several rounds of discussions with Sebi on this, without succeeding.