It could take about five months for investors awaiting payout on the National Spot Exchange (NSEL), to get their money, said Financial Technologies founder Jignesh Shah at a press conference in Mumbai.
NSEL is the wholly-owned subsidiary of Financial Technologies, and has been in the news since last Thursday after it deferred the payout of all one-day forward contracts, other than the e-series ones.
A payment crisis surfaced after several members (commodity plant owners or planters in market parlance) said they would not be able to return the funds they had borrowed through the NSEL platform.
Also read: Decoding the National Spot Exchange fiasco
Under the proposed payment schedule, the members will repay the due in phases over the next five months, with delayed payments attracting a 16 percent penalty. The schedule of the payout will be made public on August 14, Shah said. The settlement will be fully in cash, and none of the physical stock will be handed over to investors who owed money.
But the question is what happens if the planters are unable to repay the money as per the agreed payment schedule? Shah said the exchange would then initiate procedures to recover the money from the defaulters. But that would still be a long drawn procedure.
NSEL has formed a four-member independent committee comprising Justice Kochar, former Sebi chairman GN Bajpai, former bureaucrat Sharad Upasani, and ex-IPS D Sivanandan to oversee the settlement process and ensure timeliness.
Shah said “all possible law enforcing measures” will be taken against the members who default on payment. So far, three members with an outstanding of Rs 311 crore against their names, did not come for the discussion on the payment schedule.
Strangely, Shah did not give the exact value of outstanding trades despite repeated questions, saying he was unaware of the micro details, and that the number would be disclosed later on the NSEL website.
Anjani Shah, CEO of NSEL, who was supposed to address the media, along with Jignesh Shah, was not present.
Jignesh Shah also said that broker wise exposure to the contracts will also be put up on the website.
Leading brokerages have been saying they have no exposure to the NSEL contracts, but their top officials have been part of the discussions to resolve the crisis.
The settlement guarantee fund has now been drawn down to Rs 60-70 crore. This fund is the margins collected from the planters, who borrow working capital through the NSEL patform.
Last week, Anjani Shah had said that the settlement guarantee fund had roughly Rs 800 crore in it.
What is not clear yet is whether this fund has already been tapped to pay off some of the members, or if NSEL plans to use around Rs 730-740 crore from this fund to settle the trades.
The margins will be adjusted against the planters outstandings to the exchange, Shah said.
The decision to settle the outstanding contracts fully in cash has once again raised questions about the quality and quantity of the physical stock that the planters had pledged as collateral. Jignesh Shah has said that the physical inventory is the responsibility of the planters.
The FMC will be conducting an audit, and the findings will reveal if proper risk management norms had been adhered to.
Shah denied charges that the NSEL had been promoting one-day forward contracts as an assured return scheme to high networth individuals. A few journalists pointed out that the NSEL had made presentations to brokers about this product.
What is evident is that many brokerages had convinced their HNI clients to invest in this product, and are now facing their ire because of the suspension of payout.
When asked about the future of NSEL, Shah said that the exchange will continue with its e-series contracts and contracts other than one-forward till there were clear guidelines for the latter.