India set up its first depository (NSDL) under the Depositories Act passed by the Parliament in August 1996. NSDL was set up with an initial capital of INR one billion (USD 28 million), promoted by Industrial Development Bank of India (IDBI), Unit Trust of India (UTI) and National Stock Exchange of India Ltd. (NSEIL). Subsequently, State Bank of India, Global Trust Bank Limited, Citibank NA, Standard Chartered Bank, HDFC Bank Limited, The Hongkong and Shanghai Banking Corporation Limited, Deutsche Bank, Dena Bank and Canara Bank have became a shareholder of NSDL.
Stated in simple terms, the depository system comprises the Depository Participants (DPs), through whom the investors and brokers use depository facilities, the Companies or their share registrar and transfer agents (R&T agents), who agree to have their shares and securities admitted into the system, and the clearing corporations/ houses of the stock exchanges, who sign up with the depository to facilitate trading and settlement of demat securities.
In order to clear and settle trades that have been done for dematerialised securities, clearing members have to open Clearing Member Accounts with the DPs. Similarly, investors have to open Depository Accounts with DPs in order to use the facilities of the depository system. These investors offer their share certificates and scrips to the latter for dematerialisation i.e., credit to their electronically maintained accounts. For transfer or transmission of these shares or for further purchases, the investors operate these accounts almost like any other running accounts in banks.
NSDL itself functions as the central accounting and record keeping office and clearing house in respect of these shares and securities through electronic operations. As all these are electronically linked, speed, accuracy and safety are assured. Risks attendant on handling physical scrips are eliminated.