WORKING OF DEPOSITORY SYSTEM INDIA
-- D.OBUL REDDY * and Shilpa Baid **INTRODUCTIONSetting up of depository has been a milestone in the history of Indian Capital
Market. Till just about a few years ago the suggestion of a trading and settlement system
without the bane of bad deliveries was met with a cynical shrug, but not any longer. The
introduction of Depository System would eliminate all the problems of bad deliveries,
fake/forged and duplicate shares and delays in transfers which have hounded the Indian
Capital market for years. This paper attempts to identify and analyze the role of
depository system is Indian Capital Market. This paper covers the following aspects of
the subject.
- The need for Depository System in India.
- Working of Depository System.
- Benefits of Depository System.
- Problems of Depository System.
- Measures taken by the regulatory authorities to boost
dematerialized trading.
NEED FOR DEPOSITORY SYSTEM IN INDIA
In the last 2 decades, the pace of growth in the Indian Capital Market has been
almost unparalleled in the history of any nation. The extent of growth can be gauged
from the fact that as against an annual average amount of just Rs.90 crores raised from
the primary Market in 1970’s Rs.27,000 crores were raised in mid 90’s a spectacular rise
of 300 times. In terms of market capitalization and turnover, India ranks among the top
15 Countries. It occupies second place in the world in terms of number of listed
Companies next only to U.S. It has the largest number of Share-holders in the World.
Paradoxically, with the increasing volumes the problems associated with trading and
settlement system have also increased. Investor’s have been haggling with delays
associated with clearance and settlement, fraudulent, misappropriation, long drawn
transfer procedure, enormous paper work, bad and improper delivery of stock, fear of
wrong signature, stolen shares, forged shares, etc. Investors in India experienced
unpleasantness to virtual cheating by company management in matters relating to listing
of Securities, dispatch of allotment letters/ refund ordered, dispatch of securities, physical
transfer of securities, transfer of odd lots, payment of dividends, payment of Interest on
debentures, Rights to be withheld pending registration. With the passing of depository
bill in July 1996 and formation of National Securities Depository Limited (NSDL), the
Capital Market is all set to change its complexion.
WORKING OF DEPOSITORY SYSTEM
In India, Depository Ordinance paving way for the creation of depositories was
promulgated by the Government in 1995, thereby facilitating scripless trading in capital
market through dematerialization of securities. As per the regulations, equity shares,