If the Indian stockmarkets have become a cheaper, safer and more transparent place to invest in, undoubtedly much credit would go to NSE and its founder R.H. Patil. NSE would have been a mere pipedream had it not been for Patil's out-of-the-box vision and perseverance
The financial services industry hosts all kinds of people - but the pervasive traits are often aggression, pride and massive egos. In this milieu, the self-effacing R.H. Patil is a refreshing change. In a town where most operatives play the 'I-am-more-powerful-than-you game', he not only has a smile for you, but also the time and patience to answer your questions, however banal they may be.
In fact, as C.B. Bhave, chairman and managing director, National Security Depository, put it, Patil looks very unlike a man who has accomplished so much.
Patil, a deserving entrant in the Outlook Money Hall of Fame, left IDBI as its executive director to set up the National Stock Exchange (NSE), an institution that was predicted to fail even before it was established.
He reminisces: "People dubbed me stupid for having given up my senior position in IDBI to start a non-entity. With an established exchange, the Bombay Stock Exchange (BSE), being there, nobody gave NSE a chance of success. When people asked me why I was taking such a big risk, I simply said the idea fascinated me."
"I was always confident that NSE would be successful. People would ask me when NSE will surpass BSE, but they would ask it in a manner of scorn. I would say it will take at least five years. But to everybody's shock, it took only one year.
"In fact, after two years of starting NSE, a leading business magazine asked me to write about where NSE would be in the next five years for their annual issue. I said NSE will command at least 80 per cent of the volume. The editor deleted the statement. I saw it when the magazine came out and it was too late to do anything. Today, NSE is close to 95 per cent of the total turnover of the equity markets."
It is telling on Patil's personality that he seems surprised by NSE's success. "It was only when other people started commenting on how we had done a good job and how all our decisions on ownership, management, operations and technology were right that I realised it was a success," he says.
Patil and his team that set up NSE looked at decisions from two points of view. One was to study BSE and understand what they did wrong and to correct it. The other was that there was an opportunity to start from scratch and do something different. "Since I had an opportunity to create a new thing, I looked at what was the most desirable thing - why not bring the best of the things that will help the market. We looked at the existing exchange and thought, let's look at its deficiencies and correct them. The first major deficiency was that brokers owned and ran the exchange. It was unjust to small brokers and investors.
"We said if we have to set up an exchange, it has to be for the whole country. That's why we set up the satellite communication model. We can go to any place and set up a terminal in three days. The second aspect was that brokers should not have any room in the exchange - neither ownership room nor management room. We gave ownership of the exchange to institutions, management to professionals and trading operations to brokers."
Things, of course, weren't as simple as Patil makes it sound. Many powerful groups were upset by NSE's way of doing things. In fact, the founding team even had the underworld close on its heels at one point. Patil laughs as he remembers: "At that time, the underworld was also investing in the market, not directly, but through brokers. In the first couple of years, before depositories became a reality, printed fake securities used to be delivered. They were so well made that you could not tell the original from the fake. It got a bit scary when we discovered who was behind this. Our security advisor D.S. Soman, the then director-general of police, took care of it, but there was a lot of fear."
Today, Patil feels happy when the systems and technology of NSE are praised all over the world. Our exchanges are one of the safest in the world now. However, with financial institutions and foreign investors firmly in control, to a large extent, he feels the purpose of NSE is lost. "Exchanges must be for the retail investor, the little fellow. While there will be some speculation, these (current) levels of speculative foreign funds in our market have scared the retail investor. I looked at the exchange as social infrastructure, that purpose is distorted now," he says.
He is that rare breed of people who did not shift to multi-national companies and multi-million dollar salaries, but stayed on for the cause of nation-building. "Money is necessary for a comfortable life, but beyond that I have no use for it," he says.
But didn't he aspire for personal glory? "No, I am happy being a non-entity," he smiles. Patil is not just a simple man with big accomplishments, but one who has remained honest and humble, even at a time when these traits are not fashionable.
Was instrumental in establishing the NSE, which conformed to the best international standards and instituted innovations, some of them global firsts
Instrumental in setting up of National Securities Depository, the largest depository in the country, which busted the bulk of the fake share rackets
Was involved in setting up of National Securities Clearing Corporation, the first central counterpart institution in India to ensure guaranteed settlement of all equity and equity derivative transactions
The Founder-Chairman of The Clearing Corporation of India, the world's only central counterparty for settlement of inter-bank forex transactions
How NSE changed the capital markets
- Online trading eventually brought down transaction costs from 2 per cent of trade to 0.2 per cent
- Rolling settlement system makes process quicker than that even in developed markets
- Settlement guarantee makes transactions more secure
- Derivative trading provides new risk management tools
- CNX Nifty is a more representative indicator of markets