Sebi bats for 2% cap on royalty payments

In what will impact big listed companies like Maruti Suzuki, Colgate, GSK, HUL and Nestle, Market regulator Sebi is in favour of capping royalty payments at 2 per cent, as against Kotak Committees recommendation of 5 per cent. Sources tell ET Now that market regulator will bring up the issue with Finance Ministry post elections.

“We are in favour of minority shareholders so it makes sense to have a cap on royalty payments at 2 per cent”, said an official in the know of the development.

North Block is against keeping a cap on royalty payments as it is discourages multinational companies to invest in Technology transfer or invest in research and development. “We are in discussion with Finance ministry and assessing if differentiations should be made based on technology transfer or brands”, the source added.


ET Now learns that the market regulator may be open to a higher than 2 per cent royalty in case of technology transfer. Some listed players also reached out to Sebi for a clarity on the royalty payment issue.

“Most listed companies are paying royalty payments in excess of 2 per cent, a cap will significantly increase value for shareholders and we are in favour of that”, the source added. Royalty payments for Nestle stood at 4.36 per cent of total turnover in FY18, while royalty payments for India’s largest carmaker Maruti stood at 4.72 per cent as a percentage of its revenues for FY18.

Other FMCG player HUL pays less than 2 per cent in addition to 1 per cent as fees for central service from parent Unilever Plc and Colgate's royalty payout as a percentage of net sales stood at 4.97 per cent for FY18.