Jairam RameshNovember 8 marks the second anniversary of the National Securities Depository Limited ( NSDL), an institution that is fast transforming our capital market. NSDL is actually a giant satellite-based, integrated computer network that eliminates paper in all share transactions. It was during Manmohan Singh's tenure that the idea of NSDL was born and the broad outline worked out. But it required P. Chidambaram's formidable legal and managerial skills to get Parliament to pass the Depositories Act in August 1996 and to bring sceptical companies and financial institutions on board.NSDL itself is quite a remarkable institution, a rare success story in which even regulator SEBI has played a proactive role. Promoted by UTI, the National Stock Exchange and IDBI, it has 100 professionals with an average age of less than 30. It combines, in the words of its senior citizen, 48-year-old CEO Chandu Bhave, the best of three things Indians are good at: trading, finance and computers. The entire world-class software has been developed by TCS and the investment so far is about Rs 50 crore.The depository is nothing but an electronic warehouse of shares. Instead of shares being held physically in the form of certificates, they are "dematerialised" - converted into electronic balances and stored in a network of computers. A depository totally eliminates the major problem of "bad deliveries". Today, every fifth person taking delivery of stock gets securities on whose genuineness there is a doubt. Further, the risk of holding reams of paper, of losing them and of having them mutilated, forged or switched is eliminated. Whenever any transaction takes place - that is when shares are bought, sold, transferred, pledged or even when addresses are changed - considerable paperwork is involved. This is something ordinary investors know only too well.Paperwork means delays, costs and hassles. A long-term investor who, say, buys shares worth Rs 10,000 and keeps them for five years can save over Rs 100. A trader who turns over this portfolio 10 times a year could save up to Rs 500. If these shares are lost or mutilated, the cost of obtaining duplicates could exceed Rs 500. But an investor holding shares in dematerialised form will not have to incur this cost. In addition, in a depository environment there is no stamp duty for transfer of equities or of units of a mutual fund. There is immediate transfer and registration of securities. The settlement cycle is faster, which means more liquidity for the investor and quicker disbursement of corporate goodies like rights and bonuses..preferred-source-banner{ margin-top: 10px; margin-bottom:10px;}In two years, 376 crore shares worth some Rs 52,000 crore have been dematerialised. This is about 10 per cent of market capitalisation, but around 40 per cent of the floating stock. Today, 264 companies have dematerialised shares. In 32 of them, dematerialisation as a proportion of market capitalisation exceeds 25 per cent. The leaders are Infosys, Wipro, HDFC, Crisil, ICICI, Reliance, BSES, Mahindra and Mahindra, Grasim, TISCO and ACC. For the top 25-30 scrips, over 70 per cent of the delivery is in dematerialised form.Key to the interface between the retail investor and the depository is the depository participant. This could be a bank, financial institution, custodian or broker. The depository participant is one with whom you open an account and to whom you surrender your share certificates. In about 15 days, your electronic share account gets activated. There are at present 67 depository participants with whom over 90,000 individual investors have opened accounts.This may appear a minuscule proportion of the 22 million-odd investor population in India but it is actually around 20 per cent of the investing population that actively trades on a day-to-day basis. The participants have opened service centres or branches in 126 towns and cities, showing how widespread the investing culture has become in India.Trading is exactly the same in a physical or electronic environment. The Indian retail investor can keep securities in paper form or have them dematerialised. To promote the depository culture, SEBI has recently announced that trading for 31 leading scrips will be in electronic form for all investors from February 15, 1999. Some banks have now begun offering lower interest on advances against dematerialised shares. Even so, much more needs to be done.Telecom policy must change to permit inter-branch connectivity for the depository participants. In addition to the six already on board, the 16 other stock exchanges must be brought into the depository network. Only five of the 24 public-sector banks offer depository services. More must do so since the reach of private banks is limited. Ordinary investors should also be able to apply for public issues through the depository. Finally, very soon another depository promoted by the Bombay Stock Exchange is expected. Competition will be all to the good.The author is secretary of the AICC's Economic Affairs Department. The views expressed here are his own. In the interests of good practice, he records that he has no financial dealings with any of the institutions and companies mentioned above.Published By: AtMigration Published On: Nov 16, 1998--- ENDS ---
