When he joined the National Stock Exchange in 1993 as managing director from the then Industrial Development Bank of India or IDBI, the state-owned financial institution, R H Patil had a new development agenda. It was to build the country’s first professionally managed stock exchange.
Stockbrokers, who ran the century old Bombay Stock Exchange, did not think much of him. Patil did not think much of them either. After all, it was Harshad Mehta, a stockbroker, who brought the capital market in the country to a standstill.
Following the Pherwani Committee report on stock market reforms, Patil put together a competent team of leaders at NSE. Ravi Narain, who is currently the MD of the exchange and Chitra Ramakrishna, now the joint managing director, joined him in his endeavor.
By June 1994, he and his team took the wholesale debt market segment of the NSE live.
Five months later, the capital market trading system went live. By October 1995, less than a year after launch NSE surpassed the BSE to become the country’s biggest stock exchange by trading volume. The dramatic surge in the trading activity through a nationwide electronic trading platform brought new investors to the capital market.
BSE, a regional stock exchange, had to change tracks. The board of directors at BSE decided to introduce an online trading platform and began to follow NSE in every endeavor.
The rivalry between the two institutions touched a peak when M G Damani, a stockbroker became BSE president. Patil hated the broker controlled board of the BSE. He felt that brokers, who also trade on their own proprietary accounts, should not be managing a stock exchange. This was because the stock exchange was responsible for an efficient trading and a transparent settlement system.
A broker controlled stock exchange can easily manipulate the settlement mechanism. An efficient stock exchange system is where an investor trades on one day and gives or takes delivery of shares and funds at the designated time. The sanctity of the stock market depended on an efficient settlement mechanism, he used to say.
Patil always felt this function needed no intervention by market participants like brokers. He rightly saw the conflict of interest. He ensured that that NSE board did not have any stockbrokers. The ownership structure of the NSE, where IDBI was the main promoter, allowed NSE to create this board structure.
BSE struggled to keep up with the market development momentum that NSE brought.
In 1996, Patil took the initiative of setting up the National Securities Depository, the country’s first depository that would bring in paperless trading in India. India became one of the few countries to have both the trading and settlement of trades in electronic form. The settlement time for trades, where buyer takes delivery of shares and sellers get the money, was cut from a number of weeks to just two days.
He got Chandrashekhar Bhave to head the initiative. Bhave, who worked with Securities and Exchange Board of India as a senior executive director, worked with Patil to bring about the most dramatic transformation in the Indian capital market history. Bhave went on to become Sebi chairman.
Patil focused on his developmental role even after his retirement from NSE. He continued to serve the NSE board and head the clearing corporation. He also joined the disinvestment commission in 2001 and became chairman of UTI Asset Management company. In March 2012, he resigned from the board of Tata Power citing health reasons. He died of lung cancer.
R H Patil has left a legacy of strong institutions that would always remain indebted to him for his contribution. After all, he was instrumental in transforming a rigid, closed stock market system into a modern and transparent one.