Clipped from: https://www.thehindubusinessline.com/opinion/demat-a-gamechanger-for-indias-financial-landscape/article67777478.ece
It has eased equity trading and expedited settlements
In the ever-evolving world of finance, dematerialization has emerged as a transformative trend, revolutionising the way securities are held and traded.
This process involves converting physical securities, such as share certificates and bond certificates, into electronic form, eliminating the need for cumbersome paper-based records. Dematerialization has gained significant momentum in corporate India, particularly among unlisted companies, offering a plethora of benefits that are shaping the nation’s financial landscape.
Prior to dematerialization, transactions at stock exchanges were conducted through a manual process, with traders shouting buy and sell prices.
Deals were recorded on paper receipts, and after market closure, extensive paperwork was required to finalise transactions.
This process was not only time-consuming but also prone to errors and delays, hindering market efficiency and investor confidence. This was a very cumbersome process and required many days for settlement. With the formation of India’s first depository, NSDL, the entire landscape of trading and settlement changed. This also led to a boost to investor confidence as securities were settled faster and in investors’ own demat account.
Streamlined system
Dematerialization has addressed these shortcomings by introducing a streamlined electronic system. Securities are now held in electronic form at central depositories, eliminating the risk of loss, theft, or damage associated with physical certificates.
Transactions are processed electronically, ensuring faster settlement time and enhanced liquidity.
This has boosted investor confidence, as securities are now securely held and readily transferable.
The benefits of dematerialization extend beyond operational efficiency. It has fostered financial inclusion by expanding access to a broader investor base, including retail investors.
The elimination of physical certificates has reduced transaction costs, making investments more affordable and accessible. Moreover, dematerialization has enhanced transparency in shareholding patterns, promoting corporate governance and accountability.
Ministry mandate
Recognising the transformative potential of dematerialization, the Ministry of Corporate Affairs (MCA) in the year 2018 had mandated public limited companies, exempting government and Nidhi companies and wholly owned subsidiaries, to dematerialize their shares.
Now MCA has directed all private companies which are not small companies as on April 1, 2023, to dematerialize their shares by September 30, 2024.
A small company is a company having paid-up share capital equal to or below ₹4 crore and a turnover equal to or below ₹40 crore (or such a higher amount as specified in some cases). This move is expected to further streamline share transfers, reduce frauds, and facilitate transparency regarding beneficial owners.
Dematerialization is not merely a trend; it is a strategic imperative for unlisted companies in India.
These companies can attract global investors, streamline operations, and position themselves for sustained growth in the evolving financial landscape.
NSDL has a fully automated portal in place (https://issuer.nsdl.com/
companyregistration.html ) for submitting applications and an end-to-end digital process for onboarding companies and dematerializing their securities.
The writer is Vice President, NSDL. Views expressed are personal.
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