CDSL is an Indian central securities depository headquartered in Mumbai and Incorporated by the Securities and Exchange Board of India ( SEBI ) in 1999. CDSL is India’s first listed central securities depository. Let us look at an overview of CDSL before continuing with CDSL Business Model.
Overview Of CDSL
CDSL is one of the two approved depository institutions in the Indian Capital Market. A depository is an institution that holds financial securities such as stocks, bonds, and mutual funds in electronic form (De-Materialised form). Like banks hold our money in their platform.
CDSL holds these securities in a Demat Account, which the company offers to its customers. A Demat Account is similar to a Bank Account, but instead of holding money, it holds stocks and mutual funds in electronic form. Demat Account makes online investing and trading faster, secure, and convenient.
As of July 31, 2021, CDSL has 588 DPs and manages over 4.19 crore Demat accounts of investors.
Full form Of CDSL is Central Depository Services (India) Ltd
How Do CDSL Work & Functions Of CDSL
CDSL operates as a financial securities depository in India. It is responsible for holding securities (such as shares, debentures, and mutual funds) in electronic form and facilitating securities transactions.
CDSL is one of the two authorized depositories in India. NSDL is another depository.
The Functions of CDSL is the same as the banks do. A bank is responsible for protecting the money of an account holder. CDSL is responsible for protecting the financial securities of its investors.
However, CDSL does not interact directly with investors. CDSL offers its services through Depository Participants (DPs). A DP is an agent of the depository who acts as an intermediary between the investors and the depository. In most cases, stockbrokers DP are members of CDSL.
Example: Zerodha is a Depository participant who works as an intermediary between investors and CDSL.
CDSL offers the following depository services to investors through its Depository participants
- Demat account
- Dematerialization of physical securities certificates
- Rematerialization of physical securities into electronic securities
- Processing of delivery and receipt instructions
- Pledging of securities (such as shares and bonds)
- Facilitation of change of address or bank account details linked to the Demat account.
Difference Between NSDL AND CDSL
Central Depositories Services India Ltd. (CDSL) and National Securities Depository Ltd. (NSDL) are both Government-authorized securities depositories in India. Both depositories hold shares in electronic form. CDSL works for the Bombay Stock Exchange while NSDL works for National Stock Exchange. but it’s is not a mandatory rule Exchanges can both of them for Settlement of Securities.
|Full Form||Central Depositories Services Ltd.||National Securities Depository Ltd.|
|Promoters||BSE ( 20% ), Public ( 37.3% ), DII ( 36.6% ) and FII ( 6.1% )||Government Of India, IDBI Bank Ltd and Etc.|
|Number Of Authorised Depository Participants ( DPs )||599||278|
|Total Number Of Demat Accounts||4.19 Crore ( As of 31 July 2021 )||2.28 Crore ( As Of 31 July 2021 )|
|Demat Account No: Format||16 Digit Demat Account Number||16-digit alpha numeric number. Account number begins with ‘IN’ followed by 14 numeric digits|
CDSL Business Model
CDSL Follows an Asset-Light Business Model with minimal fixed cost requirements. Due to this, CDSL enjoys a significant level of operating leverage and an excellent operating margin of 62% (as per TTM data). Thus, any increase in revenue will directly expand net profit and ROE.
CDSL charges a fee for transactions made by customers in their Demat account. These charges are levied by the DPs (stockbrokers) and passed on to CDSL.
Sources Of Revenue For CDSL:
- Annual Maintenance Charges ( 34% ): Each issuer (listed securities) is required to pay an annual maintenance fee to the depository, which is fixed by the market regulator SEBI and is the same for both the depositories. Currently, it is charged at the rate of Rs. 11 per folio (ISIN position) depending on the face value of the admitted securities (paid-up capital).
- Transaction Charges ( 19% ): As mentioned, investors’ holdings are held by the Depository but the transaction is processed through the stockbrokers. For every transaction made by an investor, the stockbroker has to pay a fixed amount to CDSL for processing the transaction.
- KYC Service ( 16% ): The CDSL offers KYC services through its subsidiary CDSL Ventures Ltd (CVL). CVL is the largest KYC Registration Agency (KRA) in India, with a 60% market share. The main revenue in this segment includes one-time fees for KYC creation and additional fees for retrieval of data
- IPO & Corporate Actions ( 10% ): The company also facilitates the crediting of securities in initial public offerings and other corporate actions, such as stock splits and consolidation, as well as the payment of dividends. For these services, CDSL charges the issuing company a fixed amount based on the number of unique identities.
- Other Sources ( 22% ): Apart from the above sources, CDSL also earns through account maintenance fees, e-voting fees, ECAS fees, and other operating income.
Most of the revenue, about 34%, comes from annual issuer fees, which is kind of a stable revenue stream. Transaction fees, which are the second-largest contributor, are more cyclical in nature as the revenue from this depends on the volume of transactions.
Also, Read How Does Zerodha Make Money One Of The Largest Depository Participants Of CDSL.