Depository System in India
Depository system is an organization where the financial securities are held in dematerialized form in the same way as a bank holds money.
It provides services related to various transactions such as stocks, shares, bonds, and other classes of securities and also responsible for maintenance of electronic records and provide facilitation of trading in dematerialized securities.
A depository system helps the investors to buy or sell securities such as stocks and bonds in an electronic form. Securities in depository accounts are similar to funds in bank accounts.
The Securities and Exchange Board of India (SEBI) is responsible for the registration, regulation, and inspection of the depository. A depository participant is also answerable to the SEBI.
Depository system connects with its clients or investors through the agents, called Depository Participants (DPs). However, a Depository Participant (DP) is described as an Agent of the depository systems.
They are the intermediaries between the depository systems and the investors. The relationship between the DPs and the depository systems is governed by an agreement made between the two under the Depositories Act.
There are two depositories in India which are registered with SEBI namely National Securities Depository Limited (NSDL) and Central Depository Service (India) Limited (CSDL).
National Securities Depository Limited (NSDL)
NSDL is the first and largest depository in India, established on 8th August 1996 and was the first electronic securities depository in India. Headquarter of NSDL is situated in Mumbai, India.
The main purpose of handling the securities held in dematerialized form in the Indian capital market. NSDL is promoted by Industrial Development Bank of India (IDBI), Unit Trust of India (UTI), and National Stock Exchange (NSE), etc.
NSDL is a securities depository in India that holds the securities like shares, bonds, and debentures of investors in electronic format. It is enabled the investors to transfer the ownership of securities through the Demat account transfer without involving in paperwork.
Main objects of NSDL are to ensuring the safety and soundness of Indian marketplaces by developing settlement solutions that increase efficiency, save time, minimize risk and reduce costs.
Central Depository Service (India) Limited (CSDL)
CDSL is the second-largest securities depository in India, commenced its operations in February 1999 and also based in Mumbai. CDSL was initially promoted by BSE Ltd. which has thereafter divested its stake to leading banks as “Sponsors” of CDSL.
CDSL was set up to provide convenient, dependable and secure depository services at an affordable cost to all market participants. CDSL facilitates holding and transacting in securities in the electronic form and facilitates settlement of trades on stock exchanges.
CDSL is promoted by the State Bank of India (SBI), Bank of India, Bank of Baroda, HDFC Bank, Standard Chartered Bank, Axis Bank and the Union Bank of India, etc.
It provides the same function as NSDL as holding securities in dematerialized form and facilitates trading and settlement of securities in electronic or Demat form. Its offer services to hold stocks, debentures, bonds, commercial papers, government securities, certificates of deposit, mutual funds, etc.
Difference between NSDL and CDSL
- NSDL is operated by some large institutions such as NSE, IDBI, UTI, etc, while the CDSL is operated by some solid institutions like as BSE, HDFC, BOI, BOB, etc.
- NSDL was founded in 1996 and CDSL was founded in 1999.
- NSDL is the first depository established in India, which ensures trading and settlement of securities in electronic form while CDSL is the second largest depository in India, which facilitated the book-entry transfer of securities.
- Account maintenance, dematerialization, settlement of trade, and re-materialization. inter-depository transfers, off-market transfers, pledge, lending, and hypothecation of securities are the basic services provided by NSDL. On another side in CDSL, they offer services to hold equity, debentures, bonds, commercial papers, government securities, certificates of deposit, mutual funds, etc.
- There are around 1.45 crores investors in NSDL and another side in CDSL there are around 1.06 crores investors.