Shiny Salam
Assistant Professor
TKMCAS
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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
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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.