A Comparison Between Two Depository NSDL and CDSL
The capital markets in India have grown by leaps and bounds over the past two decades. The stock market has provided annualised returns of about 15 percent, beating other asset class such as gold and property. A total number of more than 3 crore investors are registered on the Indian stock market. Millions of shares are traded daily. Investor accounts are linked to a demat account. Despite the fact, India has a century old active capital market, the physical share-based settlement of trades was a common feature till 1996. It causes a lot of problems such as delivery of shares because of fake shares, stolen shares and delayed transfer of shares. These were serious risk to the market and the biggest hurdle to the further development of capital market in India. To resolve the issue, Depositories Act was passed in August 1996, which paved the way for establishment of India first depository i.e. NSDL.
A depository is basically an entity which helps an investor to buy or sell securities such as bonds and stocks in a paperless manner. It works as a link between listed companies (which issue shares) and shareholders. It is quite like the bank, instead of holding money, it holds shares, stocks, bonds in electronic format, on behalf of investors. A DP can be a bank, a financial institution, a broker or any entity eligible as per SEBI Norms. It is also responsible for the final transfer of shares from the depository to investors. After the end of the transaction, the investor receives a confirmation from the depository. The Indian capital market gets worldwide recognition after electronic trading was made compulsory for institutional investors, which lead to a spike in overall trading volumes in the Indian market. FII’s felt more confident about trading in the Indian market due to the introduction of depository system, as less incidents of forgery, delay and forge transfer of shares.
In India, there are mainly two depository participants, i.e. NSDL and CDSL. Both are government registered depository entity, which holds different forms of financial and securities instruments such as bonds, stocks and ETFs in an electronic format. When an investor buys the stock, the depository credits the depository account and when the investor sells their stock, the depository debits the depository account. The NSDL works for the National stock exchange, while the CDSL works for the Bombay stock exchange. Let’s understand each of their features and differences between them:
Features of NSDL and CDSL:
- NSDL was the first electronic depository in India and was launched in 1996. While the CDSL was the secondary electronic depository in India, which was launched in 1999.
- NSDL is promoted by the National Stock Exchange and other financial institutions such as Unit trust of India and Industrial Development Bank of India. While the CDSL is promoted by the Bombay Stock Exchange and other financial institutions such as State Bank of India, Bank of Baroda, Bank of India and HDFC.
- According to the March 2018, the NSDL has about 1.5 crore active accounts, whereas the CDSL has about 1.1 crore active accounts.
Both the institutions securely store securities in the depository accounts of the investors. They both have played a tremendous role in helping shareholders move away from physical certificates to holding shares in the electronic format. While the difference between NSDL and CDSL is quite negligible, but the role they are playing is quite important.
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