A STUDY ON THE DEPOSITORIES IN INDIA

ASHNA MALHOTRA

TYBMS FINANCE

ROLL NO- 91

SR. TOPIC Pg.

No. No.
1 Meaning Of Depositary 2

2 Difference Between Bank And Depository 3

3 Understanding Depositories And Depository Participants In India 3

4 Structure Of The Depository System In India 6

5 Types Of Depositories In India 7

6 Difference Between NSDL And CDSL 18

7 Who Can Be A Depository Participant 18

8 Depository Participant Account 18

9 Depository Participant Id 19

10 Depository Participants In India 20

11 Advantages Of Depository System In India 21

12 Disadvantages OF Depository System In India 21

13 Webliography 22

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MEANING OF DEPOSITARY:
The term depository refers to a facility in which something is deposited for storage or
safeguarding or an institution that accepts currency deposits from customers such as a bank or a
savings association. A depository can be an organization, bank, or institution that holds securities
and assists in the trading of securities. A depository provides security and liquidity in the market,
uses money deposited for safekeeping to lend to others, invests in other securities, and offers a
funds transfer system. A depository must return the deposit in the same condition upon request.

Depositories serve multiple purposes for the general public. First, they eliminate the risk of
holding physical assets to the owner. For instance, banks other financial institutions give
consumers a place to deposit money into time and demand deposit accounts. A time deposit is an
interest-bearing account and has a specific date of maturity such as a certificate of deposit (CD),
while a demand deposit account holds funds until they need to be withdrawn such as a checking
or savings account.

Deposits can also come in the form of securities such as stocks or bonds. When these assets are
deposited, the institution holds the securities in electronic form also known as book-entry form,
or in dematerialized or paper format such as a physical certificate.
These organizations also help create liquidity in the market. Customers give their money to a
financial institution with the belief the company holds it and gives it back when the customer
wants it back. These institutions accept customers' money and pay interest on their deposits over
time. While holding the customers' money, the institutions lend it to others in the form of
mortgage or business loans, generating more interest on the money than the interest paid to
customers.

What is a Depository in Share Market:

A depository is an entity or an organization where the shares are held in demat form with the
purpose of storage and safety.
Let’s understand the term ‘depository’ with the analogy of the banking system. It can be
compared with a bank, which holds the funds for depositors.
 

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DIFFERENCE BETWEEN BANK AND DEPOSITORY

BANK DEPOSITARY

Bank holds funds in savings and current Depository holds shares in demat accounts
accounts

Transfers funds between accounts on the Transfers shares between accounts on the
instruction of account holder instruction of demat account holder

Facilitates transfer without having to handle Facilitates transfer of ownership without having to
money handle shares

Facilitates safekeeping of money Facilitates safekeeping of shares

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UNDERSTANDING DEPOSITORIES AND DEPOSITORY
PARTICIPANTS IN INDIA:
NSDL and CDSL are depositories that maintain ownership records of financial
securities. They are linked with investors through Depository Participants (DPs), also
called stockbrokers.

 NEED FOR DEPOSITORIES IN INDIA:

Earlier, trading was carried through physical ways that required a lot of paperwork and excessive
documentation. Also, it took longer to transport one supply to another and keep records and
confirmation of the supply from a seller to a buyer.

In addition to that, there was a period in India when the urgent need for having a depository was
realized, around 28 years ago particularly in 1992, when a blunder of loopholes was found in
Indian Securities.

Ultimately, traders were making major mistakes in the stock market and the stocks of the buyers
and sellers were no longer safe. That was when the depository came into existence.

The depository is an important firm in online stock trading and allows you to sell stocks or
shares from your Demat account in a paperless and quick way.

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Product party <—–> Depository <—–> Investor

In simple words, It is the financial body that keeps your shares and stocks safe just like your
bank protects your money from theft, damage, or loss.

Perhaps, depository keeps bonds, shares, stocks, equities and other supplies of the investor in de-
materialised and in fungible form without going through long and lengthy paperwork required
for various trading supplies such as equity, derivatives, mutual funds, futures, options, currency,
commodities, IPO and much more!

The functioning, regulation, and inspection of the depository is handled and monitored by the
Securities and Exchange Board of India known as SEBI.Under the Depositories Act 1996, SEBI
forms all the policies related to the transaction of the shares or online stocks to avoid any fraud
or mishandling in the trading system.

Also, according to the Act, the depositary firms or institutions will be owned by the market
participants and a depository should have a minimum net worth of Rs. 100 crore.

 DEPOSITORY PARTICIPANT MEANING

This impeccable trading policy resulted in the decline in the rate of fraud, unauthorized
transactions, and theft in the Indian market which also attracted many foreign traders to start
buying and selling on the Indian stock market.

This also gave rise to the sudden outburst of the investors in the stock market, and it became
tough to handle such a wide range of traders and their Demat accounts along with their records
and information. That was where the need for having a Depository Participant came in.

Since we cannot get in touch with RBI directly similarly, we cannot get in touch with Depository
institutes directly. Here, we work with a stockbroker register with Depository to coordinate on
our behalf and keep our stocks, shares, debentures, mutual funds, etc. in an electronic manner.

That “registered” stockbroker or any financial institute is known as Depository Participant or

DP.In layman terms, A Demat account with a depository participant: Keeps your shares, bonds,
shares and securities safe. It is very important for you to know that under Section 12 of the SEBI
Act a Depository Participant must be registered or have an agreement with SEBI before offering
its DP services to the clients.

Depository Participants organize meetings, conferences, and even send emails to the depositories
on behalf of the investors. Also, they maintain a detailed record of each investor along with the
buying and selling flow of each product.Depository Participants are answerable to the Securities
and Exchange Board of India.In addition to the above mentioned key points, it is also important
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to know that in the year 1998, having a Demat account or electronic trading was made
compulsory in Indian stock market trading.

 A DP is a depository agent acting as an intermediary between the depository and its

clients. DPs are registered with the depository via the relevant provisions of the SEBI
Act. You have to open a Demat account with a DP to avail the services of depositories.
 Typically, DPs are stock brokerage firms that provide investors with the service of
opening Demat and trading accounts along with providing a trading platform, market
reports and other value-added services.

STRUCTURE OF THE DEPOSITORY SYSTEM IN INDIA:

Depositories hold four essential pillars for the electronic transaction of the shares, bonds, and
stocks in the various trading segments such as equity, derivatives, mutual funds, currency,
commodity, etc.

Following are the main pillars of the depository system:

 Central Depository
 Share Registrar Transfer Agent
 Clearing and Settlement Corporation
 Depository Participant

Central Depository:

a vital part of the depository system which keeps all the possessions, shares, and securities of an
investor in an electronic way.

Share Registrar Transfer Agent (RTA):

Share Registrar is a power or an organization whose main duty is to keep the records of the
investors safe after an issuer provides securities to the public. In addition to this, Transfer Agent
handles and monitors the movement of securities while buying and selling processes.

Clearing and Settlement Corporation:

A clearing and settlement corporation is associated once the transfer of shares between buyer and
seller is in process. It makes sure that the transactions are proceeding in a smooth and effective
way. It also regulates the settlement and delivery of the transactions between buyers and sellers.

Depository Participant:

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Depository Participant is the stockbroker who links between an investor and a depository. He
acts on behalf of the depository with the client or the trader.

TYPES OF DEPOSITORIES IN INDIA:

NATIONAL SECURITIES
NationalDEPOSITORY LIMITED
Securities Depository Limited (NSDL)
(NSDL)

CENTRAL DEPOSITORY SERVICES

(INDIA) LIMITED (CDSL)

National Securities Depository Limited (NSDL) and

Central Depository Services Limited (CDSL) are the two active depositories operating in the
Indian stock market to maintain stocks, shares, bonds, and asserts in an electronic manner.

The Depository Act 1996 passed by the Indian government authorizes the Bombay Stock
Exchange (BSE) and National Stock Exchange (NSE), which is 125 years old, to arrange their
depositories.

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The NSE has set up NSDL known as National Securities Depository Ltd promoted by UTI and
IDBI.

On the other hand, BSE promoted CDSL (Central Depository Securities Limited) however, the
functioning of both depositories is similar and both follow SEBI guidelines.

 NATIONAL SECURITIES DEPOSITORY LIMITED:

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 National Securities Depository Limited (NSDL) is an Indian central securities depository,
based in Mumbai. It was established in August 1996 as the first electronic securities depository
in India with national coverage. It was established based on a suggestion by a national institution
responsible for the economic development of India. It's demat accounts now hold assets worth $4
trillion.
NSDL provides bucket of services to investors, stock brokers, custodians, issuer companies,
Saving account current account Business corresponding etc. through its nationwide network of
Depository Participants or DPs and digital platforms.
NSDL is entrusted with the safekeeping of the following financial securities in the electronic
format:

 Stocks
 Bonds
 Debentures
 Commercial papers
 Mutual Funds

NSDL offers a wide range of services, like:

 Dematerialisation services
 Rematerialisation services
 Transfers between depositories
 Off-market transfers
 Lending of securities
 Collateral and mortgage of securities
 Corporate action
 Margin Pledge
 Pledge
 And Value Added Services as shown below

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10
STRUCTURE OF NSDL:

NSDL Group comprises National Securities Depository Limited (NSDL), NSDL Database
Management Limited (NDML) and NSDL Payments Bank Limited respectively. NDML and
NSDL Payments Bank are two subsidiary companies of National Security Depository Limited
(abbreviated as NSDL). It provides services related to demat of securities, transfer and settlement
of securities in Indian Securities Market.Protean e-Gov Technologies Limited (earlier known as
NSDL e-Governance Infrastructure Limited) is a separate company. It offers services related to
issuance of PAN cards and also acts as central record-keeping agency for National Pension
System (NPS).

NSDL STATISTICS:
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NSDL has more than 2.80 Crore demat accounts as on June 30, 2022. The market share of NSDL
in value of demat assets is more than 89%. NSDL demat accountholders are present in more than
99% of pin codes in India and 189 countries across the globe, reflecting the wide reach of NSDL.
It contributes to majority of the settlement in the Indian securities markets and has more than
89% share in the total value of assets held in demat form in India.

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NSDL MILESTONES IN 2022 :

MAY 2022:
 Launch of blockchain based market platform to manage and monitor the security &
covenant related to issuance of bonds

 Launch of 'Market Ka Eklavya' – NSDL’s investor awareness programme

 Release of customised corporate 'My Stamp' and 'Special Cover' on NSDL

 CENTRAL DEPOSITORY SECURITIES LIMITED (CDSL)

Central Depository Services (India) Ltd. (CDSL), the first listed Indian central securities
depository, was founded in 1999. The main function of CDSL facilitates holding and transacting
in securities in the electronic form and facilitates settlement of trades on stock exchanges.
CDSL facilitates holding and transacting in securities in the electronic form and facilitates
settlement of trades done on stock exchanges. These securities include equities, debentures,
bonds, Exchange traded Funds (ETFs), units of mutual funds, units of Alternate Investment
Funds (AIFs), Certificates of deposit (CDs), commercial papers (CPs), Government Securities
(GSecs), etc.
CDSL is currently the largest depository in India in terms of number of demat accounts opened.
On February 28, 2022, CDSL became the first depository in India to open 60-million active
demat accounts.[5] The Depository holds assets worth INR 37.2 trillion[6] as on March 31, 2022
and over 580 depository participants are associated with CDSL.

SUBSIDIARIES OF CDSL:
CDSL Ventures Limited (CVL)
CVL is the first KYC Registration Agency (KRA) registered with SEBI. CVL is also registered
as GST (Goods and Service Tax) Suvidha Provider (GSP) with GSTN. CVL provides RTA
services to corporates, Aadhaar based eKYC services and Aadhaar based eSign services.
CDSL Insurance Repository Limited (CIRL)
CIRL is in the business of enabling policy holders to hold life policies, motor policies, health policies and all
other types of general (non-life) policies in electronic form.

CDSL Commodity Repository Limited (CCRL)

CCRL facilitates holding and transfer of commodity assets in electronic form through issuance of electronic
Negotiable Warehouse Receipts (eNWRs)

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CDSL offers a wide range of services like:

 Easi:
“easi” (electronic access to securities information), an internet based facility, allows BOs
to monitor their CDSL Demat account at a place and time of their choosing. easi also
provides details of corporate announcements for ISINs held in their account as well as 25
additional ISINs.

 Easiest
“easiest” (electronic access to securities information & execution of secure
transactions), an internet based facility, allows BOs to submit debit instructions through
the internet, thus obviating the need of visiting their DP offices to submit instruction
slips.

 SMART
SMS alert facility SMART(SMS Alerts Related to Transactions) enables BOs registered
for this facility to receive SMS alerts in case of any debits or credits related to corporate
actions or any change in demographic details in their accounts.

 e-Voting
“e-Voting” is an internet based system through which shareholders can login and register
their votes on company resolutions. The system processes and records votes
automatically, which facilitates faster processing of voting results.

 M- Voting
M-Voting is a mobile application for e-Voting. The mobile app can be downloaded by
shareholders on their android and iOS based mobile devices.

 Myeasi Mobile App

Myeasi Mobile App for BOs registered for easi or easiest. Myeasi Mobile App is
designed with adaptive technology such that its fits in all Smartphones/tab screen size.
Investors can log-in to the App using their easi/easiest log-in credentials. CDSL’s Myeasi
app can be downloaded by Android and iOS based mobile devices.

 e-Locker
e-Locker is an online document storage facility to store important documents in
electronic form at one central secure location. This facility is available for easi/easiest
users.

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CDSL STATISTICS:

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CDSL was initially promoted by BSE Ltd. Currently, the top shareholders are BSE Limited, Standard
Chartered Bank, PPFAS Mutual Fund, HDFC Bank and LIC.
CDSL has in place, a robust infrastructure system with multiple back-up levels and has implemented world
class information security and cyber security practices. It is thanks to the depository system that paper-based
certificates, which were prone to be fake, forged and, counterfeit, resulting in bad deliveries have effectively
been eliminated. CDSL offers an efficient and instantaneous transfer of securities held in electronic form in
demat accounts.
Today, CDSL is an important part of the Indian Financial Ecosystem and is classified as a Market
Infrastructure Institute (MII), providing convenient, dependable, and secure depository services at affordable
cost to all market participants.

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Demat accounts at Central Depository Services (CDSL) crossed a record four crore mark in
June, underscoring the growing influence of retail investors in equities.

The surge in demat accounts began in March 2020, when the shutdown on account of Covid-19
prompted individual investors to venture directly into the market. Till then, these investors
mostly relied on equity mutual funds. With fixed deposit interest rates around their lowest levels,
the appetite for stocks is high.
Currently, retail investors command 70% of the market share in the average daily turnover while
turnover of institutions, including foreign portfolio investors (FPIs) and dom ..

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DIFFERENCE BETWEEN NSDL AND CDSL:
In terms of services to investors, there is no key difference between having a Demat account with
a DP registered either with NSDL or CDSL. Both are regulated by SEBI and provide similar
trading and investing services. The only difference between both the depositories is their
operating markets. While NSDL has National Stock Exchange (NSE) as the primary operating
market, CDSL’s primary market is the Bombay Stock Exchange (BSE).

WHO CAN BE A DEPOSITORY PARTICIPANT?

Many people think that only a stockbroker can be a depository participant whereas it is not true.
Anyone who fulfills SEBI guidelines can be a depository participant.

Below are the sectors or organizations that can act as a Depository Participant by signing an
agreement with SEBI and following their guidelines and policies:

 Stock Brokers
 Public Financial Institutions
 Banks particularly the foreign banks
 Custodians
 State Financial Institutions
 Even a non-banking finance company
 RTA (Registrar and Transfer Agents)

DEPOSITORY PARTICIPANT ACCOUNT:

To protect the investor’s securities and keep them in the dematerialized form it is important to
have a depository participant account. And, to have an account, it’s crucial to open a Demat
account with a depository participant which can either be CDSL or NSDL. Since the shares are
bought and sold through a Demat account and without having a Demat account online trading is
incomplete. Also, as per SEBI norms, it is compulsory to have a Demat account to trade
electronically without using any physical securities.

To open a Demat account with CDSL or NSDL, follow the steps discussed below:

 The very first mandatory step is to look for the best stock brokers in India which offer
you the desired facilities. Also, going through their brokerage charges, account opening
charges, etc is a must.

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  Now, once you are satisfied with the stockbroker you can contact them by finding their
contact number on their website. Also, most of the stockbrokers have chat options too
and some offer online Demat account opening facilities too.

 Usually, for opening a Demat account it requires Adhaar card, PAN details, Canceled
cheque, Identification Proof, and a Photograph.

 After you fill all the information and provide all the required documents, the Depository
Participant will verify your details and after an In-Person verification process, you will be
given a unique client ID.

 Once you open a Demat account with any Indian registered stockbroker you will be
required to pay a certain sum of amount for each transaction that you will make from
your Demat account.

 Most of the time, the DP charges are determined by the stockbroker or depository
participant.

The amount against each buying or selling process is paid to the depositary by the depositary
participant.There are a few depository participants who charge a similar amount charged by the
depositories without their commission.

The minimum DP charges are Rs. 5 per transaction and maximum can reach up to Rs. 25 per
transaction depending upon the depository participant. Also, GST @ 18% is also levied per
transaction from the investors’ Demat account.

DEPOSITORY PARTICIPANT ID:

The two depositories in India have their unique number which is used to provide the Depository
Participant ID to various registered stockbrokers, banks, or financial institutes of India. Having a
special identification number helps you to access your account directly with CDSL and NSDL.
The Depository Participant issues an ID that comprises DP ID and customer ID.

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DEPOSITORY PARTICIPANTS IN INDIA:
There are certain stockbrokers in India that work under the guidance of depository participants
and follow SEBI guidelines.

They have an agreement with either NSDL or CDSL or both for keeping the investors’ securities
safe and in an electronic way.

As of 2012, there are around 288 depository participants of National Securities Depository
Limited having their registration with SEBI and over 563 registered with CSDL- Central
Securities Depository Limited and SEBI in India.

Some of the well-known depository participants examples in India are as follows:

 Sharekhan
 Zerodha
 India Infoline
 Angel Broking
 Reliance Securities
 ICICI Securities
 Motilal Oswal
 Anand Rathi

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ADVANTAGES OF DEPOSITORY SYSTEM IN INDIA:
Here are some advantages of Depository participants:-

 The first and foremost importance of depositories is that they offer the facility of
protecting the securities of an investor from all the bad deliveries and risks associated
with physical certificates such as theft, damage, or loss that have been refrained.
 Secondly, depositories convert the stocks, shares, debentures, and bonds in an electronic
way to keep the process paperless.
 Thirdly, depositories allow a fast and quick selling process from a Demat account by
demolishing long documentation steps and saving time from deed transferring,
settlement, etc.
 Finally, depositories allow delivering shares in any part of the country without paying
transportation costs or custom tax.

DISADVANTAGES OF DEPOSITORY SYSTEM:

 Some of the companies avoid opting for depository facilities which create hurdles in the
uniform transactions in the stock market trade.
 SEBI is not successfully handling the depository operations which creates a plethora of
loopholes in the selling of the stocks.
 Most of the investors still lack knowledge about the importance of the depository system.
Therefore, the system is failing to provide dematerialized securities to the investors and
safeguard them.
 A rise in DP charges is experienced by the depository participants since they charge the
cost higher from the investors to keep their account safe and transaction in a de-mat way.

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 WEBLIOGRAPHY:
http://thesoftcopy.in/2021/10/19/the-rise-and-rise-of-demat-accounts/#:~:text=Statistics
%20released%20by%20depositories%20show%20that%20the%20number,and
%20Central%20Depository%20Services%20%28India%29%20Limited%20%28CDSL
%29%20indicate.

https://economictimes.indiatimes.com/markets/stocks/news/retail-rush-demat-accounts-
with-cdsl-cross-4-crore-mark/articleshow/84247898.cms

https://www.cdslindia.com/CM/How-to-become-cm.html

https://en.wikipedia.org/wiki/Central_Depository_Services#:~:text=CDSL%20was
%20initially%20promoted%20by%20BSE%20Ltd.%20Currently%2C,world%20class
%20information%20security%20and%20cyber%20security%20practices.

https://nsdl.co.in/about/

https://en.wikipedia.org/wiki/National_Securities_Depository_Limited

https://www.adigitalblogger.com/depository/depository-participant/

THANKYOU

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