NSDL Vs CDSL: What’s the Difference Between These Two Depositories?

NSDL (National Securities Depository Limited) and CDSL (Central Depository Services Limited) play pivotal roles in India's capital markets by offering depository services that enable the dematerialization of securities.

Despite operating in the same industry, they differ in terms of business segments, market share, and financial performance.

NSDL

• NSDL, established in 1996, is a leading depository in India, offering services to investors, issuers, and brokers by facilitating securities trading in electronic form.
• NSDL manages dematerialized accounts, and also provides e-governance services including the National Pension System (NPS) and other database management services.

Upcoming IPO

• Total Issue Size: Offer for Sale (OFS) of up to 57.26 million equity shares.

Key Selling Shareholders

• IDBI Bank: Offering 22.22 million shares.
• National Stock Exchange (NSE): Offering 18 million shares.
• Union Bank, SBI, HDFC Bank, and Administrator of SUUTI also have significant stakes offered through this IPO.
• Since this is an OFS, the proceeds will go to the selling shareholders, and there won’t be any fresh capital raised for NSDL.

Industry Position

• NSDL holds a dominant position in India's depository ecosystem with a 35% market share, while its competitor, CDSL, covers the rest 65%.
• NSDL has a diversified business model with services spanning securities depository and e-governance systems, giving it a broader reach compared to CDSL.

Tailwinds

• As India pushes further toward digitalization, services like NSDL’s e-governance platforms (for NPS and KYC) are expected to see strong growth.
• With more securities moving from physical to electronic form, NSDL stands to benefit as more investors open dematerialized accounts.

CDSL

• CDSL was established in 1999. It was set up with the primary goal of providing depository services in India to manage the dematerialization of securities, and to facilitate electronic book-entry transfer of securities.
• CDSL serves a large portion of retail investors and is currently the only publicly listed depository in India.

• Revenue and Profitability: Both NSDL and CDSL are nearly equal in terms of revenue (~?900 crore). CDSL has a slight edge in terms of profit and revenue, but the difference is minimal.
• Market Share: CDSL holds a 65% market share, whereas NSDL has a 35% share. CDSL dominates the retail investor segment, while NSDL focuses more on institutional clients.
• Operating Margins: NSDL seems to have a slightly higher operating margin (~45%), indicating higher efficiency, but CDSL’s 41% margin is also strong.
• Custody Value: NSDL holds a much larger custody value (~?360 lakh crore) compared to CDSL’s ?64 lakh crore, largely due to NSDL’s focus on institutional accounts and larger demat custody volumes.
• Demat Accounts: CDSL leads with 11.56 crore active demat accounts, almost double NSDL's ~6 crore, due to CDSL's stronger foothold in the retail market.
• NSDL focuses heavily on providing digital solutions for institutional players, including technology for securities settlement and pension management.
• CDSL offers a suite of investor-facing digital services, such as the e-DIS (electronic delivery instruction slip), e-voting, and API-based solutions for seamless investor and participant experience.

The Gist

Both NSDL and CDSL are critical to India's financial infrastructure. NSDL serves a more institutional and government-focused clientele, while CDSL is the market leader in the retail investor segment.

In terms of financial performance, CDSL's faster growth in active demat accounts and superior profit margins highlight its dominance in the retail space, making it the more diversified player.

However, NSDL's role in e-governance and handling of institutional securities cannot be overlooked for those targeting stability and long-term government-backed initiatives.

While CDSL and NSDL hold a near-duopoly in the depository space, they face competition in the broader financial services infrastructure space from entities that provide back-office, investment-related, and financial technology services.