profile of NSDL , Central Depositories in India , Benefits from NSDL ,Functions of NSDL ,Services Offered by NSDL

1. “ A Study on NSDL”
A
PRESENTATION ON “ NSDL ’’
SUBJECT : FINANCIAL INSTITUTION MARKETS AND SERVICES
Submitted By ; Mr. GHANI NAIK
Mcom – 1sem
AICM,
Submitted To ; Dr. KANTHARAJU N P Mcom NET KSET (P.hD)
ASSISTANT PROFESSOR
AICM,
2019 – 2020
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2. “ A Study on NSDL”
Contents
S.no Particulars Page No
1. profile of NSDL 3 - 4
2. Central Depositories in India 5 - 5
3. Benefits from NSDL 6 - 8
4. Functions of NSDL 9 - 9
5. Services Offered by NSDL 10 - 15
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3. “ A Study on NSDL”
PROFILE OF NSDL
National Securities Depository Limited
National Securities Depository Limited is an Indian central securities depository
based in Mumbai. It was established on 8 November 1996 as the first electronic
securities depository in India with national coverage.
Headquarters location:Mumbai
Founded:8 August 1996
Type of business: Central securities depository
Key person: G.V. Nageswara Rao
Subsidiary: National Securities Depository Ltd., Asset Management Arm
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4. “ A Study on NSDL”
National Securities Depository Limited (NSDL) is a financial organization
created to hold securities such as bonds, shares etc. in the form of physical or
non-physical certificates i.e. in dematerialized format. These securities are held
in depository accounts such as funds held in bank accounts. It facilitates prompt
transfer of securities as ownership is transferred simply through book entries.
This is usually done electronically thus eliminating the extra time that was taken
in following the traditional practice where physical certificates had to be
exchanged after a trade was completed
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5. “ A Study on NSDL”
There are two central depositories in India –
•National Security Depository Limited (NSDL) and
•Central Depository Services Limited (CDSL)
NSDL is the first & largest depository in India established on November 8, 1996 which
is basically formed for the purpose of handling the securities held in dematerialized form
in the Indian capital market. NSDL opens 3602 accounts on an average each day.
NSDL is promoted by Industrial Development Bank of India (IDBI), Unit Trust of India
(UTI), and National Stock Exchange (NSE). The principal shareholders of NSDL are as
follows –
•Axis Bank Limited
•Citibank
•Deutsche Bank
•HSBC
•State Bank of India (SBI)
•HDFC Bank
•Standard Chartered Bank
•Dena Bank
•Canara Bank
•Oriental Bank of Commerce
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6. “ A Study on NSDL”
Benefits from National Securities Depository Limited (NSDL)
NSDL was created to address issues arising because of ownership of
securities held in physical form and its transfer. Some of the benefits of the
subscription from the organisation are as follows:
1. No bad deliveries: In case of paper based transaction, the buyer did not
have the facility of examining quality of asset before buying it, hence there
was a risk involved. The risk has been eliminated by NSDL as securities are
held in dematerialized form and hence there are no chances of bad
deliveries.
2. Elimination of risks related to physical certificates: – There is a lot of risk
involved with physical certificates such as risk of theft, damage due to wear
and tear, mutilation, destruction, etc. In depository system, since these
certificates are now held in demat form, there is no such risk involved. It
also saves the cost incurred for issuing duplicate certificates.
3. Stamp duty: Stamp duty was essential in the traditional method, now there
is no need of paying stamp duty in case securities are transferred through
depositories. This rule is also applicable in case of transfer of equity shares,
debt instruments and mutual funds.
4. Immediate transfer and registration of securities: In depository system,
once the security has been credited to the investor account he becomes the
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7. “ A Study on NSDL”
owner of that security legally. This is unlike physical system, where he/she
was required to send them to company registrar for changing the
ownership which used to take a lot of time. It also exposed the investor to
the risk of them being lost in transit and opportunity cost in case there is a
delay in transfer.
5. Reduction in brokerage: Transfer of securities through depositories helps
in reducing the back office paper work, efforts required at the end of
brokers and risk faced by them being an introducer. As a result, the
brokerage charged by brokers is also reduced. It is beneficial to both
investors as well as brokers, thus this is a win–win situation for both.
6. Reduction in handling huge paper work: Online transaction of securities
leads to reduction in paper work as everything is available online and at a
click of few buttons. This doesn’t require maintaining a number of trail
documents for the transaction.
7. Status Reports: Periodic statement of accounts containing the details of
transactions executed and status of holding are provided to the investors;
thus facilitating better controls.
8. Ease in change of investor details: In traditional system, if there was any
change in the details of the investor such as communication address, the
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8. “ A Study on NSDL”
investor had to go through the cumbersome process of getting it changed in
every company in which he has invested. This process has been simplified
as now the investor needs to inform his Depository Participants (DPs) about
the change and submit relevant documents. The data is updated
everywhere immediately and there is no need to inform every company
separately.
9. Simplified process of transmission: The transmission of shares held in
demat form can be done by simply providing required documents to DPs
and transmission is reflected in the database of all the companies wherein
the investor is listed as a registered owner of securities. Thus, eliminating
the traditional practice in which the nominee or joint holder had to
individually communicate to all the companies in which he holds shares.
10.Simplified process for sale of securities held on behalf of minor:The
guardian who has been designated as being responsible for minor is not
required to take prior approval of court for selling the securities held in
demat form purchased on behalf of the minor.
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9. “ A Study on NSDL”
FUNCTIONS OF NATIONAL SECURITIES DEPOSITORY LTD
NSDL performs the following functions through its participants:
1. It maintains investors’ holdings in the electronic form.
2. It enables the surrender and withdrawal of securities to and from the
depository.
3. If effects settlement of securities traded on exchanges.
4. It carries out settlements that have not been done on the stock exchanges.
5. It makes allotment in electronic form, of initial public offerings (IPO).
6. It offers facility for freezing or locking of investors’ accounts.
7. It facilitates offer of securities as a mortgage for loans.
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10. “ A Study on NSDL”
Services Offered by NSDL
The services offered by NSDL can be grouped under 3 categories:
•Basic Services: As per the provisions of the Depositories Act, NSDL
provides various services to investors, brokers, banks and other security
issuers participating in the Indian financial market. Any investor, broker or
intermediary who wants to avail services of NSDL, is required to open a
depository account with DPs.
Depository account can be of 3 types:
•Beneficiary account,
•Clearing member account and
•Intermediary account.
Services provided on the above-mentioned accounts are:
1.Dematerialization: It is a process by which an investor can convert
physical certificates into electronic balances.
•For dematerialization, the investor needs to deface the certificates and
surrender them to the Depository Participant.
•DP intimates NSDL and sends the certificates to the concerned Issuer/ R&T
agent.
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•If the Issuer/ R&T agent is satisfied with the certificates, confirmation
request is communicated to NSDL.
•Once the confirmation is received, securities are credited in the depository
account of investor by NSDL.
2.Rematerialzation: It is the process through which an investor can convert
his securities held in electronic form into physical certificates. For
rematerialzation,
•The investor is required to submit a rematerialzation request to the DP who
has the investor’s account.
•The DP blocks the holding of the investor by entering the rematerialzation
request in the system.
•The securities are blocked only to the extent to which rematerialzation
request is received.
•The DP sends the request to NSDL along with request form to Issuer/ R&T
agent.
•On receiving the request form, the Issuer/ R&T agent prints the certificates
and dispatches them to the client.
•NSDL is also intimated about the acceptance of the request.
•Thereafter, the client’s blocked balances are debited.
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3.Market Transfer: The investor can buy or sell the securities held by them
in the dematerialized form.
4.Off-Market Transfer: Trades which are not settled through the Clearing
Corporation/ Clearing House of an exchange are classified as “Off-Market
Trades”. Delivery of securities to or from sub brokers and delivery for trade-
for-trade transactions are some of the examples of off-market trades.
5.Inter-depository transfer: Transfer of securities from an account in one
depository to an account in another depository is known as inter-depository
transfer.
6.Transmission: Transmission is devolution of title to shares other than by
transfer i.e. devolution by death, succession, inheritance, bankruptcy,
marriage, etc. This is operational by law.
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7.Corporate Actions: Corporate actions are benefits given by companies to
the investors. These benefits can be monetary such as dividend, interest,
etc. or non-monetary such as bonus, rights, etc.
•Value added Services: NSDL provides various other services like
hypothecation of securities, pledge, automatic delivery of securities to
clearing corporations, distribution of various cash and non-cash benefits,
stock lending, demat of NSC/KVP, demat of warehouse receipts, etc. Some
of the services provided are as under:
1.Pledge or Hypothecation of securities: For availing loan or credit
facility, securities held in a depository account can be pledged or
hypothecated. Both the borrower (pledger) and the lender (pledgee) should
have account in NSDL depository for pledging securities.
2.Automatic Delivery out Instructions:
This facilitates Clearing Corporation to execute delivery-out instructions for
moving securities from CM Pool Account to CM Delivery Account
automatically based on the net delivery obligations of its Clearing Members.
The Clearing Corporation can generate Auto DOs on behalf of only those
Clearing Members who have authorized it in this regard.
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3.Dividend Distribution: Currently, NSDL only facilitates distribution of
corporate cash benefits such as dividends to shareholders.
•Details of all beneficial owners of the security as on the record date of the
concerned company are provided by NSDL to the company or its registrar
•This data is shared with the transfer agent (R & T agent)
•Thereafter, the company’s R & T agent dispatches dividend entitlements to
the beneficial owners
•Beneficial owners are eligible in the same manner as shareholders holding
physical certificates.
4.Lending and borrowing: The transactions which involve lending and
borrowing of securities can be executed through approved intermediaries
duly registered under the Securities Lending Scheme, 1997 with SEBI.
•An intermediary can deal in the depository system only through a special
account (known as Intermediary Account) opened with a DP.
•An intermediary account may be opened with the DP only after the
intermediary has obtained SEBI approval and registered itself with SEBI
under the Securities Lending Scheme.
•The intermediary must also obtain the approval from NSDL.
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15. “ A Study on NSDL”
5.Public Issue: Investors have an option to seek allotment of public issues in
electronic form.
•NSDL depository system provides facility for allotment of securities directly
in to the depository account of the investors in the demat form.
•As per SEBI guidelines, trades in shares issued through public shall be
settled only in demat form.
•It is advisable that investors seek allotment in demat form.
6.SMS Alert:
NSDL offers SMS Alerts facility for demat account holders wherein they can
receive alerts directly from NSDL for various transactions such as all debit
transfers, failed instructions, overdue instructions, etc. No charge is levied
by NSDL for providing this facility to investors.
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