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Banks vs Depositories: A Comparative Analysis, Study notes of Financial Market

A concise comparison between banks and depositories, highlighting their respective functions in handling funds and securities. It outlines how banks manage funds through accounts and facilitate transfers, while depositories handle securities, enabling ownership transfers and safekeeping. The document also mentions shcil as the first depository, offering a brief overview of the role and importance of depositories in the financial system. This comparison is useful for understanding the distinct roles of these institutions in the financial landscape. (410 characters)

Typology: Study notes

2024/2025

Available from 06/06/2025

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Shiny Salam
Assistant Professor
TKMCAS
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Download Banks vs Depositories: A Comparative Analysis and more Study notes Financial Market in PDF only on Docsity!

Shiny Salam

Assistant Professor

TKMCAS

Inorder to overcome the various

problems associated with dealing in

physical shares , such as:-

  • (^) problems of theft, fake and/or

forged transfers.

  • (^) share transfer delays due to

signature mismatches.

  • (^) much paperwork.
  • (^) time consuming process

Introduction

Depository System

Depository System is also known as

“Scripless Trading System”.

It is an organisation which holds

the securities of a shareholder in the

form of electronic accounts

(dematerialised form), in the same

way a bank holds the money.

A custodian of its clients’ securities.

Interfaces with its investors

Who is a depository participant?

A depository participant (DP) is an

agent of the depository who is

authorised to offer depository services

to all the investors.

DP is the intermediary between the

investor and the depository.

A DP has to be registered with SEBI.

A DP is just like a branch of a bank.

An investor can open an account

Features of depository system in India

Type of

ownership

Fungibility

Free

transferability

No stamp duty

Indemnity

against loss

A Bank – A depository An analogy

Bank Depository

 (^) Holds funds in an account. Holds securities in an account.

 Transfers funds between

accounts on the instruction of

the accountholder.

Transfers securities between

accounts on the instruction of

the accountholder.

 (^) Facilitates transfer without

having to handle money.

Facilitates transfer of ownership

without having to handle

securities.

 (^) Facilitates safekeeping of

money.

Facilitates safekeeping of

securities.

Objectives of depository

Reduce the

time for

transfer of

securities.

Avoid the

risk of

settlement

of

securities.

Enhance

liquidity

and

efficienc y.

Reduce

transaction

cost for the

investor.

Create a

system for

central

handling of

securities.

The depository process

Opening an

account

Demateriali

stion

Remateriali

sation

Distributin

g dividend

Closing an

account

Opening an account

Choosing a

depository

participant.

Obtaining the

relevant account

opening form from

the chosen DP.

Getting into an

agreement with the

DP (Client-DP

Agreement).

Obtaining a client

account number or

client ID number.

Dematerialisation

The process of converting

share certificates or other

securities held in physical

form into electronic form is

called dematerialisation.

Dematerialisation process

Rematerialisation Process

Depositories in India

The depository model adopted

in India is a multi-depository

system where there are various

entities providing depository

services.

At present, there are two

depositories registered with

SEBI.