A PROJECT REPORT ON “Depository Participants in Bangalore” A Comparative Analysis. Submitted to All India Management Association Centre for Management Education Management House, 14 Institutional Area, Lodhi Road, New Delhi-110003. JULY 2004-2006 BY CHANDRIMA NANDI Registration No. 800420591 GUIDED BY LATIKA ROY
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A PROJECT REPORT ON
“Depository Participants in Bangalore”A Comparative Analysis.
Submitted toAll India Management Association Centre for Management
EducationManagement House,14 Institutional Area,
Lodhi Road,New Delhi-110003.
JULY 2004-2006
BY
CHANDRIMA NANDIRegistration No. 800420591
GUIDED BY
LATIKA ROYArea Manager
For the Partial Fulfillment ofPOST GRADUATE DIPLOMA IN MANAGEMENT
DECLARATION
I, Chandrima Nandi , studying in Alliance Business Academy, Bangalore do
hereby declare that this Project relating to Stock Holding Corporation of
India Ltd (SHCIL) and the title “A Comparative analysis of the depository
participants in Bangalore” has been prepared by me after undergoing the
prescribed industrial survey as part of the requirement of the PGDM program of
AIMA. My guide for the training has been Mrs. Latika Roy. I, further declare
that this project work is the outcome of my efforts and not a replica of any other
report/work submitted to any university or boards. I also declare the same
report has not been submitted to any other University or Board for the award of
any other degree or diploma.
Date: Name of student: Chandrima NandiPlace: Bangalore Reg. No - 800420591
ACKNOWLEDGEMENT
An exchange of ideas generates a new object to work in a better way. Apart from
the ability labor and time devotion, guidance and co-operation are two pillars for
the success of a project. Whenever a person is helped or co-operated by others,
his heart is bound to pay gratitude to others.
A satiation and pleasure that accompany the successful completion of task would
be incomplete without the mention of the people who have made it possible and
whose consent guidance and encouragement served as a guiding light for the
completion of the study.
I consider it privilege to express through my report a few words of gratitude to all
those who have guided and inspired me in completing this study. I would like to
express my deep sense of gratitude to Mr. Harish Shenoy and all the staff
members of their giving me support and helping me during my project study.
I would also like to express my sincere thanks to honorable President, Mr. Sudhir
Angur and our Director Mr. B.V.Krishnamurthy for giving me an opportunity for
undergoing this study. I would also like to express my gratitude to my project
guide Mrs. Latika Roy for her constant encouragement and guidance without the
task would not have been completed.
Last but not the least I would like to thank my parent and friends for their support
and suggestions.
THANKYOU ALL
CHANDRIMA NANDI
CONTENTS
Chapter No. Contents Page
Chapter I At a Glance 1-2
Chapter II Introduction 3-7
Background
Purpose
Objective
Limitations of the study
Plan analysis
Chapter III Industry Profile 8-23
Chapter IV Company profile 24-29
Chapter V Products and Services 30-79
Chapter VI SWOT Analysis 80-82
Chapter VII Methodology 83-84
Chapter VIII Analysis & interpretation 85-104
Chapter IX Summary of findings 105-107
Recommendations & Conclusion 108-110
Bibliography 111-112
Annexure 113-116
CONTENTS OF THE TABLES
Serial
Number
Title Page
Number
Table 1 Age group of respondents 87
Table 2 No. of shareholders trading in SHCIL 88
Table 3 No. of years the respondents holding the shares
in SHICL
89
Table 4 How safe the securities are in opting the demat 90
Table 5 Most preferred DP product 91
Table 6 Selection of the source in which information
is available
92
Table 7 Selection of Stock Exchange by the shareholders
and brokers.
93
Table 8 Attribute of services available at SHCIL 94
Table 9 Selection of investment avenues. 95
Table 10 Tailor-made services 96
Table 11 Value-added services available to the clients
at SHCIL
97
Table 12 Satisfaction in terms of Infrastructure, software
of the organization.
98
Table 13 Effectiveness of the DP services compared to
Other financial institutions.
99
Table 14 Interest rates in terms of loan against demat
Held in DP.
100
Table 15 Safety & security of the demat account. 101
Table 16 Service charges charged by SHCIL 102
Table 17 Effectiveness in settling the stock 103
Table 18 On-line trading. 104
CONTENTS OF THE GRAPHS
Serial
Number
Title Page
Number
Table 1 Age group of respondents 87
Table 2 No. of shareholders trading in SHCIL 88
Table 3 No. of years the respondents holding the shares
in SHICL
89
Table 4 How safe the securities are in opting the demat 90
Table 5 Most preferred DP product 91
Table 6 Selection of the source in which information
is available
92
Table 7 Selection of Stock Exchange by the shareholders
and brokers.
93
Table 8 Attribute of services available at SHCIL 94
Table 9 Selection of investment avenues. 95
Table 10 Tailor-made services 96
Table 11 Value-added services available to the clients
at SHCIL
97
Table 12 Satisfaction in terms of Infrastructure, software
of the organization.
98
Table 13 Effectiveness of the DP services compared to
Other financial institutions.
99
Table 14 Interest rates in terms of loan against demat
Held in DP.
100
Table 15 Safety & security of the demat account. 101
Table 16 Service charges charged by SHCIL 102
Table 17 Effectiveness in settling the stock 103
Table 18 On-line trading. 104
Stock Holding Corporation of India Limited
At a Glance
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Stock Holding Corporation of India Limited
Executive Summary
The study is about comparing the different services and products offered at
SHCIL with the other Depository participants. Project mainly deals with how
the resources of the organization are used in their day-to-day activities. For a
finance manager it will be of great help to know how to properly utilize the
resources of the organization. It is not only the theory, which will help in the
corporate world, but also how things happen practically. Here there is an
opportunity to learn how the things happen practically. Every day the various
activities happening in the department are observed and understood carefully.
The study initially concentrated on obtaining the information from the investors
on various parameters. As it is a finance project mainly data will be available
internally. After finishing this task, the actual analysis of the project has been
started where certain important calculations has been done. This helped to
come out with some conclusions. Also the data pertaining to some Demat
Section Managers has been taken and analyzed which made to arrive at
some interim conclusions as a part of project.
Stock holding has various financial Products and Services to be offered to the
clients but problem lies in the low promotional activities undertaken by it, due
to which though it has the services not offered by other DP's it fails in
captivating customers. Another problem faced by it is technology; systems at
stock holding are not technologically upgraded: it follows old technology and
modes of making entries of payments into systems. Due to system error
payments to franchisees are not made on time, which in turn affects their
business relationship. Since stock holding is into DP's business from long time
it still follows old methods of operations. Thus, the researcher got interested to
conduct study on the Depository Services under the title “Comparative
analysis of various Depository Participants with reference to Stock
Holding Corporation of India limited”.
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Stock Holding Corporation of India Limited
Introduction
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Stock Holding Corporation of India Limited
Background
Depository
A depository is a facility for holding securities, which enables securities
transactions to be processed by book entry. To achieve this purpose, the
depository may immobilize the securities or dematerialise them (so that they
exist only as electronic records).' India has chosen the dematerialisation
route. In India, a depository is an organization, which holds the beneficial
owner's securities in electronic form, through a registered Depository
Participant (DP). A depository functions somewhat similar to a commercial
bank. To avail of the services offered by a depository, the investor has to
open an account with it through a registered DP.
Depository Participant
A Depository Participant (DP) is an agent of the depository who is authorized
to offer depository services to investors. Financial institutions, banks,
custodians and stockbrokers complying with the requirements prescribed by
SEBI/ Depositories can be registered as DP.
Benefits of Depository
Bad delivery eliminated
Immediate transfer of shares
No stamp duty on such transfers
Elimination of risks that are normally associated in dealing with
Physical certificates - loss / theft / mutilation due to careless handling /
forgery / etc
Reduced transaction cost
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Stock Holding Corporation of India Limited
Services provided by Depository
Dematerialisation (usually known as demat) is converting physical
certificates to electronic form
Rematerialisation, known as remat, is reverse of demat, i.e. getting
physical certificates from the electronic securities
Transfer of securities, change of beneficial ownership
Settlement of trades done on exchange connected to the Depository
Pledge / Hypothecation of demat shares, viz. Loan against shares
Electronic credit in public offering of the Companies
Non - Cash corporate benefits, viz. Bonus / Rights - direct credit into
electronic form
No. of Depository in the country
National Securities Depository Ltd.
Central Depository Services Ltd.
Research Title
A Comparative Analysis of Depository Participants in Bangalore with
reference to India’s Largest DP “Stock Holding Corporation Of India Ltd.”
Purpose
The past few years have seen a phenomenal growth in the capital market
leading to an explosion in transaction holding despite the transparency offered
by NSE and BSE, the primitive settlement and transfer process kept the
biggest chunk of the market risk- bad delivery, delayed transfer, fake
certificates, loss and theft etc, unresolved. The Depositories is the answer to
such risk and problems.
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Stock Holding Corporation of India Limited
Introduction of the depositories has paved the way for instituting an
infrastructure for eliminating these risks and increasing the efficiency of the
system.
The purpose of this study is to provide information to both the organization
and the investors/savers, providing to the former present state and future
prospect and to the later differences among the services provided by the
various depository participants.
A comparative analysis of various Depository Participants with reference to
India’s Largest DP “Stock Holding Corporation Of India Ltd.”. This study will
help to have a better understanding about where SHCIL stands in the market
today and also to compare various DPs on certain parameters.
Objectives
The main objectives of the project undertaken are-
To understand the attitude and perception of investors/savers towards
the DPs.
To ascertain SHCIL’s position in the competitive market.
To collect the data on various parameters
Tariff
Service
Reach(No. of branches)
Promoters
Product
To develop and analyze strategies of SHCIL to help improve its
market share.
To offer suggestions based upon the findings.
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Stock Holding Corporation of India Limited
Limitations of the study
The study is limited only to SHCIL, JC road branch Bangalore.
There was a constraint of time.
The entire study is based on the information provided by the various
respondents at SHCIL.
For the purpose of collecting vital information, Manager of the
organization is only contacted & interviewed. Since he is an
individual, his biases may have creped into the data given.
The policy of the company does not allow getting all the information.
PLAN ANALYSIS
The collected data will be analyzed with the help of parametric techniques
such as percentages, correlation, regression, co-efficient of variation and the
like. Wherever necessary tables charts, graphs, diagrams are used.
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Stock Holding Corporation of India Limited
INDUSTRY PROFILE
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Stock Holding Corporation of India Limited
INDUSTRY PROFILE
FINANCIAL MARKET
Globalization of the financial market has led to a manifold increase in the
investment. New markets have been opened: new instruments have been
developed: and new services have been launched. Besides, a number of
opportunities and challenges have also been thrown open. Stock Holding
Corporation of India Limited. (SHCIL), the premier custodian of Indian capital
market providing services of international standards, is geared up to
reposition itself in the changed scenario. With world — acclaimed automation
and a team of committed professionals, SHCIL is confident of scaling new
heights. Combining its financial strength and technical expertise to serve the
clients better, wherever and whenever it is needed, SHCIL envisages acting
as a partner one can trust. The corporation has restructured and geared itself
to serve the growing needs of individual investors in the paperless
environment. The organization in its willingness to provide its state of art of
financial services in securities industries to the various segments of the
investors has expanded itself to more than 100 cities across the country. SHC
desires to give investors the time and attention in monitoring the performance
of their securities consistently. All aimed at providing the investor with
optimum financial gain.
India has a well established capital market mechanism where in effective and
efficient transfer of money capital or financial resources from the investing
class to the entrepreneur class in the private and the public sector of the
economy occur. Indian capital market has a long history of organized trading
which started with the transaction in the loan stocks of the East India
Company; from that time it has undergone drastic changes to meet the
requirements of the globalization. The Indian capital market had been
dormant in the 70’s and 80’s has witnessed unprecedented boom during the
recent years. There has been a shift of house hold savings from physical
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Stock Holding Corporation of India Limited
assets to financial assets, particularly the risk bearing securities such as
shares and debentures. Capital market structure has also undergone sea
changes with number of financial services and banking companies, private
limited companies coming into the scene which made the competition in the
market stiffer.
CAPITAL MARKET
The capital market consists of primary market and secondary market
segments. The primary market deals with the issue of new instruments by the
corporate sector such as equity shares, preference shares and debentures.
The public sector consisting of central and state governments, various public
sector industrial units (PSUs), statutory and other authorities such as state
electricity boards and port trust also issue bonds. The primary market in which
public issue of securities is made through a prospectus is a retail market and
there is no physical location. Direct mailing, advertisements and brokers reach
the investors. Screen based trading eliminates the need of trading floor.
The secondary market or stock exchange where existing securities are traded
is an auction arena. Since 1995, trading in securities is screen based. Screen
based trading has also made an appearance in India. The secondary markets
consist of 23 stock exchanges including the NSE and OTCE and Inter
Connected Stock Exchanges of India ltd. The secondary market provides a
trading place for the securities already issued to be bought and sold. It also
provides liquidity to the initial buyers in the primary market to re-offer the
securities to any interested buyer at a price, if mutually accepted. An active
secondary market actually promotes the growth of the primary market and
capital formation because investors in the primary market are assured of a
continuous market and they can liquidate their investments in the stock
exchange.
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Stock Holding Corporation of India Limited
DEPOSITORY
Depository is an organization where the securities of a share holder are kept
in the electronic form at the request of the shareholder through a medium of a
depository participant (DP). The principal function of a depository is to
dematerialise securities and enable their transactions in book form
electronically.
In India, the Depository Act defines a depository to mean “A company formed
and registered under the companies act, 1956 and which has been granted a
certificate of registration under sub-section (la) of section 12 of the Securities
and Exchange Board of India (SEBI) act, 1992”.
Legal Framework of Depositories:
The depositories act of 1996 provides for regulation of depositories in
securities and for matter there with or incidental there to and came into from
2O” of September, 1995.
SEBI formulated the Depositories and participants regulations act, 1996 to
oversee the matter regarding admission and working of depositories and its
participant. The depositories act passed by parliament received the presidents
assent on august 1, 1996 enables the setting up of multiple depositories in the
country. Only a company registered under the Companies Act Of 1956 and
sponsored by the specified categories of institution can setup depositories in
India. The depository offers services relating to holding of securities and
facility processing of transactions in such securities in book entry form. The
transactions handed by depositories include settlement of market trades,
settlement of off trades, Securities lending and borrowing, pledge and
hypothecations.
Eligibility Criteria For a Depository:
Any of the following may be a depository:
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Stock Holding Corporation of India Limited
1. A public financial institution as defined in section 4a of the Companies Act
Of 1956.
2. A bank included in the second schedule to the RBI Act, 1934.
3. A foreign bank operating in India with the approval of the RBI.
4. Recognized stock exchanges.
5. An institution engaged in providing financial services where not less than
75% of the equity is held jointly or severally by these institutions.
6. A custodian of securities approved by government of India.
7. A foreign financial services institutions approved by government of India.
The promoters of depository are also known as its sponsor. A depository
company must have a minimum worth of Rs. 100 Cr. The sponsor of the
depository has to hold at least 51% of capital of the depository company.
Agreement Between Depository and Issuers:
If either the issuer (a company which has issued securities) or the investor
opts to hold his securities in demat form, the issuer enters into an agreement
with the depository to enable the investors to dematerialize their securities.
Where an issuer has appointed a registrar to the issue and (R&T) agent, the
case may be for the securities declared for dematerialization
Rights and Obligations of Depositories:
1. Every depository should have adequate mechanisms for reviewing
monitoring and evaluating the controls, systems, procedures and safeguards.
2. Annual inspections of the procedures and same should be reported to
SEBI.
3. To ensure that the integrity of automatic data processor systems is
maintained to safeguard information.
4. Adequate measures including insurances, to protect the interests of the
beneficial owners against any risk.
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Stock Holding Corporation of India Limited
Functions of Depository:
Dematerlisation
One of the primary functions of depository is to eliminate or minimize the
movement of physical securities in the market. This is done through
converting securities held in physical form in to holdings in to back entry form.
Accounts Transfer
The depository gives effects to all transfers resulting from the settlement of
trade and other transaction between various beneficial owners by recording
entries in the accounts of such beneficial owners.
Transfer and registration
A transfer is a legal change of ownership of a security in the records of the
issuer. Transfer of securities under demat occurs merely by passing book
entries in the records of the depositories, on the instructions of beneficial
owners.
Pledge and hypothecation
Depositories allow the securities placed with them to be used as collateral to
secure loans and other credits. The securities pledged are transferred to a
segregated or collateral account through book entries in the records of the
depository.
Linkages with clearing system
The clearing system performs the functions of ascertaining the pay-in (sell) or
pay (buy) of brokers who leave traded on the stock-exchange. Actual delivery
of securities to the clearing system from the selling brokers and delivery of
securities from the clearing system to the buying broker is done by depository.
To achieve this, depositories and the clearing system are linked electronically.
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Stock Holding Corporation of India Limited
To handle the securities in electronic as per the Depositories Act 1996, two
depositories are registered with SEBI. They are: National Securities
Depository Limited (NSDL), Central Depository Services (India) Limited
(CDSL).
DEPOSITORY PARTICIPANTS
Depository participants (DPS) are described as an agent of the depository.
They are the intermediaries between the depository and the investors. The
relationship between the DP’s and the depository is governed by an
arrangement made between the two under the depositories act. In a strictly
legal sense a OP is an entity who is registered as such with SEBI under the
provisions of the SEBI Act. As per the provisions of this act a OP can offer
depository services only after obtaining a certificate of registration from SEBI.
Eligibility Criteria For Depository Participant
A public financial institution as defined in sections of the companies
act.
A bank included for the time being in the second schedule to the RBI.
A foreign bank operating in India with the approval of RBI.
A state financial corporation established under the provisions of section
3 of the state financial corporations act, 1951.
An institution engaged in providing financial services promoted jointly
or severally by any of the institutions mentioned above.
A custodian of securities who has been granted a certificate of
registration by SEBI.
A clearing corporations or a clearinghouse of stock exchange.
A stock broker who has been granted a certificate of registration by
SEBI.
A non-banking finance company.
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Stock Holding Corporation of India Limited
A R& T agent who has been granted a certificate of registration by
SEBI.
A person desirous of becoming a DP of NSDL should make an application to
SEBI through NSDL. NSDL evaluates and sends to SEW within 30 with
recommendations. If all the conditions are met SEBI grants the registration
certificate to the applicant. SEBI prescribes a minimum net worth of
Rs.5OIakh for stock brokers, R&T agents and non-banking finance companies
(NBFCs) for granting them a certificate & registration to act as a DR. A
certificate of registration is valid for a period of 5 years. It may be renewed
after 5 years.
Rights and Obligations of Depository Participant
1. Agreement with beneficial owners:
The OP must enter into an agreement with a beneficial owner before acting as
a DR on his behalf. A DR while conducting business with a client, acts as an
agent of NSDL and is liable to the clients for all the acts and deeds performed
by him.
2. Separate accounts:
The DP shall open a separate account in the name of each beneficial owner’s
account only on receipt of instructions from beneficial owner.
3. Statement of account:
The OP should provide statements of accounts to the beneficial owner as laid
in the agreement with the beneficial owner. It should be done fortnightly if any
transactions are made and at least quarterly if no transactions are done, It can
be provided through internet.
4. Transfer or withdrawal by beneficial owner:
The DP should allow a beneficial owner to withdraw or transfer securities from
its accounts in such manner as specified in the agreement with beneficial
owner.
5. Connectivity:
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Stock Holding Corporation of India Limited
The DP should maintain continuous electronic communication with each
P0SItory in which it is participant.
6. Monitoring, reviewing & evaluating internet systems & controls:
DP should have an adequate mechanism for the purposes of reviewing
monitoring and evaluating its internal accounting controls and systems. It has
to get an audit done on quarterly basis.
7. Reconciliation:
The DP shot reconcile its records with every depository in which it is
participant on a daily basis. The NSDL system is designed to do this
automatically every day at the end of the day (EOD).
8. Returns:
The DP should submit periodic returns to SEBI and to every depository in
which it is a participant.
9. DP to indemnify depository:
A DP has to indemnify the depository, its officers and employees for all costs,
fees, expenses, liabilities, taxes, actual losses and damages of any nature
what so ever suffered like failure to comply with laws, failure to deliver eligible
securities etc.
10. Prohibition of Assignment:
No DP can assign or delegate its functions as a participant to any other
person without prior approval of NSDL.
11. Insurance:
DP’s should take appropriate insurance cover to insure against losses arising
from any possible business risk and system failure.
12. Record of services:
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Stock Holding Corporation of India Limited
The DP should maintain and preserve the documents for all transactions for a
minimum period of 5 years.
13. DP to ensure integrity and back-up of data:
Where DP’s maintain electronic records, they should ensure the integrity of
the data processing system. All necessary precautions should be taken to
ensure that the records are not lost, destroyed or tampered with sufficient
back-up of records should be taken and made available at all times at
different places. SEBI at any time may cancel the registration of DP if they are
not in complying with the rules laid by the depositories act. Like guilty of fraud,
repeated defaults. DR may sometimes choose to terminate its participation in
the depository by giving notice of less than 30 days.
GOVERNING BODIES OF DEPOSITORY PARTICIPANT
National Securities Depository Limited (NSDL)
National securities depository limited is the first depository to be set up in
India. It was incorporated on December 12, 1995. The Industrial Development
Bank Of India (IDBI) the largest development bank in India, UTI the largest
Indian mutual fund and the National Stock Exchange in India sponsored the
setting up of NSDL and subscribed to the initial capital. NSDL commenced
operations on November 8, 1996. Following organizations are share holders
of NSDL as on march 31, 2001:
a) INDUSTRIAL DEVELOPMENT BANK OF INDIA
b) UNITED TRUST OF INDIA
c) NATIONAL STOCK EXCHANGE
d) STATE BANK OF INDIA
e) GLOBAL TRUST BANK
f) CITIBANK
g) STANDARD CHARTED BANK
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Stock Holding Corporation of India Limited
h) HDFC BANK
i) HSBC
j) DEUTSCHE BANK
k) DENA BANK
l) CANARA BANK
Ownership:
NSDL is a public limited company incorporated under the companies act,
1956. NSDL had a paid up equity capital of Rs.10 crore. The paid-up capital
has been reduced to Rs.80 crore since NSDL has bought back its shares of
the face value of Rs.4.2 crore in the year 2000. However, its network is above
Rs.100 crore as required by SEBI regulations. -
Management of NSDL:
NSDL is managed by professional board of director. The managing director
conducts the day to day operations. To assist the MD in his functions, the
board appoints an executive committee of not more than 16 members. The
eligibility criteria and period of nomination of the members of EC etc. are
governed by the bye-laws of NSDL in this regard.
Bye-laws of NSDL:
The bye-laws approved by SEBI which contain 14 chapters they are:
a) Short title and commencement
b) Definitions
c) Board of directors
d) Executive committee
e) Business rules
f) Participates
g) Safeguards to protect interest of clients and participants
h) Securities
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Stock Holding Corporation of India Limited
i) Accounts by book entry
j) Reconciliation accounts and audit
k) Disciplinary action appeal
l) Appeals
m) Conciliation
n) Arbitration
Function of NSDL:
NSDL performs the following functions through Depository participants (DP)
Enables the surrender and withdrawal of securities to and from the
depository (dematerialisation and rematerialisation).
Maintains investor holdings in the electronic form.
Effects settlement of trades not done on the stock-exchange (off-
market trades).
Transfer of securities.
Pledging I hypothecation of companies or corporates.
Receipt of non-cash corporate benefits like bonus rights r electronic
form.
Stock lending and borrowing.
The investors interact with a depository participant (DP) of NSDL. A DP can
be a bank, financial institution, a custodian or a broker. Just as one opens a
bank account to avail of the services of a bank, an investor has to open an
account with a DP in order to avail of the depository facilities.
Central Depository Services Of India Limited (CDSL)
Central depository services of India ltd were the second depository to be
granted the commencement certificate by SEBI on 8 February 1999,
inaugurated on 15 July 1999. It is promoted by the Bombay stock exchange,
in association of bank of India.
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Stock Holding Corporation of India Limited
Both NSDL and CDSL interface with investors through their service providers
known as DP. The depository is interconnected. It is possible to transfer
shares from one depository to another.
CDSL was promoted by The Stock Exchange, Mumbai (BSE) jointly with
leading banks such as State Bank of India, Bank of India, Bank of Baroda
HDFC Bank, Standard Chartered Bank, Union Bank of India and Centurion
Bank.
CDSL was set up with the objective of providing convenient, dependable ‘and
secure depository services at affordable cost to all market participants. Some
of the important milestones of CDSL system are:
. CDSL received the certificate of commencement of business from SEBI in
February 1999.
• Honorable union finance minister, Shri Yashwanth Sinha flagged off the
operations of CDSL on July 15 1999.
• Settlement of trades in the demat mode through BOl shareholding limited,
the clearing house of BSE started in July 1999.
• All leading stock exchanges like national stock exchange, Calcutta stock
exchange, Delhi stock exchange, stock exchange Ahmedabad, etc have
established Connectivity with CDSL.
• As at the end of Dec 2004, over 4900 issuers have admitted their securities
(equities, bonds, debentures, and commercial papers), units of mutual funds,
certificate of deposits etc. into the CDSL system.
CDSL’s demat services are extended through its agents called Depository
Participants (DP). The DP is the link between the investor and CDSL. An
investor who opens a demat account with a DP can utilize the services offered
by CDSL. While the OP processes the instructions of the investor , the
account and records thereof is maintained with CDSL A DP is thus a t centre”
for the investor.
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Stock Holding Corporation of India Limited
CDSL’s system is based on centralized database architecture with on-line
connectivity with DPs. Because of this centralized architecture, the cost for
setting up a OP outfit under CDSL system is significantly lower. Similarly, the
recurring costs to be incurred by a CDSL DP in terms of maintaining back-ups
and the related data storage are minimal. This enables a CDSL DP to offer
depository services to investors at an attractive price and at the same time
achieve break-even faster at much lower volumes. The centralized
architecture also allows CDSL-DP to make available to the investors a to-the-
minute status of their account and transactions.
BENEFITS AND SAFETY OF DEPOSITORY SYSTEM
In the depository system the ownership and transfer of securities take place
by means of electronic book entries. At the outset, this system capital market
of the dangers related to handling of paper. The benefits that are accrued by
this system are:
> Elimination of bad deliveries:
Once the holdings of investors are dematerialized, the question of bad
deliveries doesn’t arise because both transfer deed and share certificate are
eliminated in depository system.
> Elimination of all risks associated with physical certificate:
Dealing fl physical securities have the associated risks of loss of certificates
during movements to and from the registrars. These expose the investor to
cost of obtaining duplicate certificates, advertisement etc., such problems
don’t arise in the depository environment.
> No stamp duty:
No stamp duty for transfer of equity instruments and units of mutual funds in
this system.
> Immediate transfer and registration of certificate:
Once the securities are credited, to the investors account on payout, he
becomes the legal owner of the securities.
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Stock Holding Corporation of India Limited
> Faster settlement cycle:
The exclusive demat segment follow rolling settlement of T+2 days which
enables faster turnover of stock and enhance liquidity with the investor.
> Buyer is secured:
In physical environment, the buyer is not secured since the shares purchased
may not be transferred. This is not the case with depository system.
> Faster disbursement of non-cash corporate benefits:
NSDL provides for direct credit of non-cash corporate entitlements like rights,
bonus etc., to an investors account ensuring faster disbursement.
> Reduction in rate of interest on loan:
Some banks provide these benefits against pledge of departmentalized
securities.
> Increase in maximum limit of advances:
This increases from Rs.l0 lakh to Rs.20 Lakh per borrower. There is also a
reduction in minimum margin from 50% to 25% by banks to advances against
demat securities.
> Reduction in brokerage:
Brokers may provide a reduction in the brokerage of 0.25% to 0.5% for trading
in dematerialised securities as it reduces their back office cost of handling
paper.
> Reduction in handling huge volumes of paper:
In the physical environment every entity involved in purchase or sale of
securities was to handle paper and pass on the paper to the next entity. But in
the depository system only the delivery instruction to be given by the client is
in the form of paper.
> Periodic status reports:
DP’s need to provide periodic reports to investors on their holding and
transactions.
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Stock Holding Corporation of India Limited
> Dematerialized securities can be delivered in the physical segment:
From April 1998 this facility is available at stock-exchange where trading in
dematerialized securities is allowed. But physical securities are not allowed to
be delivered in the dematerialized segment, making dematerialized stocks
held with the investors more liquid than physical stocks.
>Elimination of problems related to change of address of investors,
transmission etc:
Investors have to inform the change of address to the OF which will be
reflected in the database of all the companies where the investor is a
registered holder of securities.
> Elimination of problems related to nominations:
An account holder can get securities in all companies transmitted transferred
to his account by completing formalities with a single entity.
> Elimination of problems related to selling securities on behalf of a minor:
A natural guardian is not required to take court approval for selling demat
securities on behalf of a minor.
> Convenient consideration of account:
To multiple accounts opened by investors, all accounts can be consolidated
into one account by giving instructions to DP.
> Convenient portfolio monitoring:
Client can monitor portfolio by checking a single statement of
holding/transactions
> Increased volumes:
Due to case in transaction and related costs, many players have
entered/increased their transaction, which increases liquidity.
> Newer services:
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Stock Holding Corporation of India Limited
Opportunities like pledge / hypothecation and stock lending are given
specifically by depository system.
Many safety measures like investor grievances, insurances cover, computer
and communication infrastructure, periodic review, certificate of registration
were made necessary to protect investors.
Company profile
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Stock Holding Corporation of India Limited
COMPANY PROFILE
STOCK HOLDING CORPORATION OF INDIA LIMITED
1.1 Introduction to the company:
Flagged off at the initiative of the Government of India, SHCIL enjoys an
enviable parentage that very few organizations can boast of, including leading
Indian Financial Institutions and the Insurance majors. It has been jointly
promoted by IDBI, ICICI, IFCI, IIBI, UTI, LIC, and GIC and its subsidiaries.
It is headed by luminaries from its promoter institutions who constitute its
Board of Directors and take policy decisions pertinent to the affairs of the
corporation. A senior management team that reports to the Managing Director
and the CEO aids, assists and strategies business lines for the Corporation.
The primary focus of the corporation was specific – to set up custodial
services of international standards in India and in the process to manage the
entire array of post trade activities of Financial Institutions and Foreign
Institutional Investors with dedicated client relationship teams and state-of-
the-art reporting systems.
The corporation quickly garnered nearly 70% market share of the domestic
custodial business and the financial figures shot up impressively for the first
decade of its existence.
With sustained market leadership, the biggest investing body of the country
in its client list, SHCIL ensures that its technology support not only holds
enormous databases together but also makes sense and service out of it too.
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Stock Holding Corporation of India Limited
The Smithsonian Institute’s Award for “Innovative Use of Technology in the
Field of Finance” in1996 and “Computer Society of India Award” were
affirmations of its efforts, long before information technology started
leapfrogging across the country.
SHCIL has also received “No Action Letter” from Securities Exchange
Commission (SEC) of USA, which renders it an eligible institution to hold
assets of US-based funds.
1.2 Vision of the Company:
“To become one stop shop for all financial services”.
This vision of the company is slowly being achieved with the foray of the
company into new financial services and products into its portfolio the latest to
be the Insurance product, which would be soon distributed.
1.3 Mission of the Company:
“To spread Quality Service through the innovative use of technology”.
1.4 Objectives of the Company:
To retain the No. 1 position in the DP industry by being ahead of all
other DP service providers with the innovative use of technology.
To provide justified service to every rupee the client pays.
To ensure security and convenience of transaction to its clients at
reasonable price.
To channel technology to make convenient products for financial
market that give quantum benefits to investors, corporate houses and
brokers.
To reach 37 million Internet users in the years to come with e-
commerce projection scaling USD 1.7 billion.
To move with speed and ease, diversifying into new areas,
considerably on others and sharpening its focus and paradigms.
To increase its customer base, this at present is 7 lakh.
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Stock Holding Corporation of India Limited
To evolve a new strategy to emerge as a broad based financial
powerhouse in the years to come.
To find ways to make information and reporting system more effective
for the institutional clients.
To expand to the South-East Asia, with the aim of becoming the leader.
1.5 Basic facts about SHCIL
SHCIL is India’s largest depository participant.
SHCIL has around 20% market share i.e. over 8 lakhs demat accounts.
SHCIL has approx, 50% market share of delivery- based transaction which
amount to 1.33 crore transaction.
1. Short title and commencement
2. Definitions
3. Board of directors
4. Executive committee
5. Business rules
6. Participates
7. Safeguards to protect interest of clients and participants
8. Securities
9. Accounts/transactions by book entry
10.Reconciliation, accounts and audit
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Stock Holding Corporation of India Limited
HIERARCHICAL STRUCTURE OF SHCIL
List of various functional VPs:
VP (Depository Services) VP (IT)
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BOARD OF DIRECTORS
MANAGING DIRECTOR & CEO
JOINT MANAGING DIRECTOR
Sr V P ( BUS. DEV) Sr VP (FINANCE) VPs (FUNCTIONAL)