Back in the 1990s, Buying and selling shares in India earlier meant dealing with physical certificates that could get lost, delayed, or even misused. This created a lot of problems and made trading slow and confusing. Then came the idea to make trading shares as easy as using a bank account. This is exactly what the National Securities Depository Limited (NSDL) set out to do when it was created in 1996. The government passed a new law called the Depositories Act so that a digital system could be introduced. It became the safe place where all these digital certificates (or “dematerialized” shares) could be stored and managed. It changed the way securities are held and traded in India. No longer reliant on physical share certificates, market participants now enjoy a seamless, digital ecosystem that enhances safety, efficiency, and transparency.
NSDL stands as one of the largest depositories, entrusted with the safe custody of securities in dematerialized form. Registered with the Securities and Exchange Board of India (SEBI) and operating under stringent regulatory norms, it was established to address the inherent challenges of paper-based securities transactions. Prior to their advent, the Indian capital market was fraught with inefficiencies such as delayed settlements, lost certificates, and litigation over ownership disputes. By digitizing securities, they not only mitigated these issues but also paved the way for a more integrated and reliable market ecosystem.
Over the years, the depository has evolved into a digital vault which is a secure, sophisticated infrastructure that handles trillions of rupees in securities. With over 3.5 crore demat accounts and a presence that spans nearly every pin code in India, its system supports a diverse range of asset classes, including equities, bonds, mutual funds, and even innovative products like electronic gold receipts, thereby cementing its role as the backbone of India’s capital markets.
NSDL’s business operations are built around a few fundamental pillars that enable it to serve both issuers and investors. These functions not only streamline trading and settlement processes but also contribute significantly to market confidence.
Annual Fees (₹27.42 crores): This revenue is like a yearly membership fee. NSDL charges companies and the agents (called Depository Participants or DPs) a fixed annual fee for keeping their accounts and records updated in the digital system. These charges cover the ongoing cost of maintaining the digital lockers where securities are stored. The fees are not tied to individual transactions but are paid regularly throughout the year to keep the service running. Additionally, changes in the rules set by SEBI (the market regulator) about annual custody or issuer charges are also reflected in this fee.
Custody Fees (₹205.89 crores): Custody fees are like the cost of renting a safe to keep your valuables. In NSDL’s case, these fees are collected for holding and protecting the securities (such as shares and bonds) in digital form. The fee is usually based on the total value of the assets stored in the digital locker. This stream is a major source of income, showing the importance of its role in safeguarding the investments of millions of people.
Registration Fees (₹3.33 crores): When a new company or participant joins NSDL, a one-time registration fee is charged. This fee covers the cost of setting up a new digital account or registering new securities with them. It includes processing the applications, verifying details, and keeping the registration records updated. It is similar to paying a small fee when you open a new bank account.
Transaction Fees (₹308.63 crores): Transaction fees are the charges that come from processing each trade or transfer of securities. Every time you buy or sell shares, transfer them from one account to another, or participate in corporate actions (like bonus or rights issues), a small fee is applied. Since many transactions happen every day, these fees add up and form a significant part of their income.
Communication Fees (₹3.13 crores): These fees are charged for the communication services NSDL provides to keep participants informed. For instance, they may send out alerts, updates, or important notifications about changes in your account or corporate actions. Though this is a smaller source of revenue compared to others, it still contributes to the overall income by ensuring that information is shared promptly with investors and agents.
Income from Banking Services (₹719.24 crores): NSDL Payments Bank Limited, a subsidiary of NSDL, brings in revenue through regular banking services. This income includes fees from processing payment transactions, managing demand deposits, offering remittance services, and issuing debit or prepaid cards. In simple terms, it is similar to the revenue a bank earns from everyday transactions and services provided to its customers. This is one of the key revenue sources, highlighting that its business is not only about holding securities but also about offering essential banking services.
Digital Infrastructure for Demat Accounts
At the heart of their offerings is its ability to maintain secure demat accounts. Much like a bank account for securities, a demat account provided by them allows investors to hold shares, bonds, and other financial instruments in electronic form. This digital transformation eradicates the risks associated with physical certificates, such as loss, damage, or forgery, and simplifies record-keeping.
Safety: Dematerialized securities eliminate the need for physical handling, significantly reducing the risk of theft or damage.
Efficiency: Electronic accounts enable instantaneous transfers and real-time updates, ensuring that transactions are processed swiftly.
Transparency: Every transaction is recorded electronically, providing a clear and immutable audit trail.
Electronic Settlement Services
NSDL plays a pivotal role in ensuring that securities trades are settled quickly and securely. Its state-of-the-art electronic settlement system has transformed traditional market practices, reducing the time lag between trade execution and settlement.
T+1 Settlement Cycle: In a major market reform, India transitioned from a T+2 to a T+1 settlement cycle. This means that trades are settled just one business day after execution, reducing counterparty risk and improving liquidity.
Beta T+0 Settlement: NSDL has taken it a step further by launching a beta version of T+0 settlement which aims to settle trades on the same day..
UPI Block Mechanism: To protect investors from potential defaults, it has implemented a unified payment interface (UPI) block mechanism. Instead of transferring funds outright, the required amount is blocked in the investor’s bank account until the trade is settled.
Innovation and Service Enhancements
The commitment to adapting and using the latest technology is evident in its continuous efforts to innovate and improve its service offerings. From mobile applications to blockchain-based solutions, it stays ahead of the curve in digital transformation.
Blockchain and Distributed Ledger Technology (DLT): NSDL has introduced blockchain-based solutions for monitoring corporate bonds and ensuring compliance with covenant requirements. This not only enhances transparency but also fortifies security.
Mobile Applications: The NSDL SPEED-e mobile app empowers users to manage their demat accounts, update KYC details, view transaction histories, and even initiate margin pledges, all from the convenience of their smartphones.
Automation: Continuous process automation reduces manual intervention, minimizes errors, and speeds up transactions.
Issuer and Investor Services
Beyond maintaining demat accounts and facilitating settlements, NSDL offers a suite of services tailored to meet the needs of both issuers and investors. These services are integral to ensuring that market operations run smoothly.
Issuer Services: The depository provides platforms for issuing electronic certificates, conducting electronic voting (e-Voting), and managing corporate actions such as dividend distributions and rights issues.
Investor Services: Investors benefit from regular account statements, streamlined processes for updating personal information, and a secure platform for managing their investments.
Value-Added Services: It also offers ancillary services such as tax-related products, bank account updates, and email notification systems, which further enhance user convenience.
NSDL’s impressive growth trajectory is underpinned by a variety of factors that span technological changes, strategic partnerships, and a robust regulatory environment. These growth drivers not only support the current operations but also set the stage for future expansion.
Multi-Channel Distribution Network
The extensive network of depository participants (DPs) is a critical element of its growth strategy. These DPs, ranging from major banks and brokerage firms to specialized financial institutions, help extend their reach across the country.
Wide Geographic Coverage: With service centers in over 2,000 cities and towns, they ensure that even investors in remote areas have access to its digital services.
Diverse Partner Ecosystem: The broad mix of DPs means that they can cater to a wide range of investor needs, from retail to institutional clients.
Strategic Partnerships and Alliances
Partnerships with Leading Banks: Strategic ties with major banks such as HDFC Bank, State Bank of India, and IDBI Bank enhance NSDL’s credibility and operational reach.
Integration with Stock Exchanges: Close collaboration with exchanges like NSE and BSE ensures that NSDL’s services remain aligned with market requirements, driving adoption among market participants.
Global Outreach: Many initiatives extend beyond India, with digital services and depository solutions contributing to its international presence, thereby attracting foreign portfolio investors.
Increasing Investor Participation
One of the most significant trends in the Indian capital market has been the surge in retail investor participation.Their digital solutions have made it easier for millions of investors to enter the market.
Rising Number of Demat Accounts: With the number of active demat accounts growing steadily, NSDL is positioned to capitalize on this trend as more and more people invest their surplus savings which equally supports the economic growth of a nation.
Enhanced Investor Education: Initiatives aimed at increasing financial literacy and investor awareness have contributed to the growing adoption of digital securities.
Operational Scalability and Flexibility
Their infrastructure is built to handle large volumes of transactions while remaining flexible enough to adapt to changing market conditions.
Scalable Technology Platforms: The use of modern, cloud-based systems and automated processes enables them to scale operations quickly, even during periods of market volatility.
Resilient Systems: Investments in cybersecurity and disaster recovery systems ensure that NSDL can maintain continuous operations, safeguarding investor interests even during adverse events.
Revenue Growth and Profitability
Revenue from Operations shows a year-on-year growth of 15.6%, increasing to ₹473.06 crore in FY 2023-24 from ₹409.17 crore in FY 2022-23, primarily driven by its fee-based services, which include account maintenance fees, transaction charges, and other service-related incomes. The total income increased from ₹1,099.82 crores in FY 2022-23 to ₹1,365.70 crores in FY 2023-24, as a result of growth in core business activities. The Profit After Tax (PAT) has shown a steady climb, moving from ₹234.81 crore to ₹275.44 crore. Earnings Per Share (EPS) also increased, from ₹11.74 to ₹13.77 reflecting the value the company is generating for shareholders. NSDL’s strategic investments have increased the interest income on non-current investments from ₹5,861.63 lakh to ₹7,374.58 lakh, showing how the company is leveraging financial resources for income generation.
Cost Management and Operational Efficiency
Although total expenditure increased from ₹758.36 crores in FY 2022-23 to ₹973.79 crore, the growth in income outpaced the rise in expenses, thereby bolstering overall profitability. The company’s EBITDA margins have remained healthy, reflecting its ability to generate strong operating profits despite the increased scale of operations. NSDL’s net worth has also grown, providing a solid foundation for future expansion and the ability to absorb market fluctuations.
Key Growth Drivers
In a market where only two firms operate, traditional valuation metrics often hold less significance. Since NSDL and CDSL form a duopoly, they enjoy pricing power, regulatory protection, and limited competition. As a result, these stocks tend to trade at a premium valuation compared to typical financial service firms reflected in the high price to earnings multiples.
Similarly, P/B (Price-to-Book) ratios hold limited relevance here. Both NSDL and CDSL operate on an asset-light model, meaning they don't rely on heavy infrastructure or capital-intensive investments. Unlike banks or NBFCs, their profitability isn’t driven by asset ownership but by transaction volumes and account maintenance fees.
Market Share: CDSL leads the market in the total number of demat accounts, holding 146.5 million accounts versus NSDL’s 38.8 million. Retail participation in India’s equity markets has surged, benefiting CDSL disproportionately. With more first-time investors opening demat accounts, CDSL’s scalability and lower-cost structure provide a competitive edge. While NSDL serves institutional clients and large investors, CDSL’s wider user base ensures a steady flow of recurring revenues.
With an upcoming public offering on the horizon, the journey is an exciting interest area for the investors of the NSDL Unlisted Shares, considering their market positioning, backed by solid fundamentals, and the opportunity to be a part of an ecosystem which is continuously growing and evolving with high amount of retail and institutional participation, economic environment and the regulatory support.
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