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Investors yet to benefit from lower charges

With no regulation to control how much the DPs charge, investors can only hope that competition would bring down these charges someday, reports Vyas Mohan.

business Updated: Nov 26, 2007 22:46 IST
Vyas Mohan

Despite depositories levying lower transaction charges on share transfers, investors continue to pay more as depository participants have not yet passed on the benefit to them.

The National Securities Depositories Limited (NSDL) had cut its transaction charges from Rs 8 to Rs 6, and recently announced a further reduction to Rs 5 (lower by 16 per cent with effect from January 1, 2008), while the Central Depository Services (CDSL) levies a transaction charge or Rs 5.

However, depository participants continue to charge more. In some cases, it is as high as Rs 25 (roughly 416 times what NSDL currently charges).

“My depository account is with a bank, which charges Rs 23 per outgoing scrip. This is apart from the custodian charges of around Rs 250. When asked, they said their costs are as high,” said Siddharth Kuvavala, a sub-broker turned investor.

For instance, Religare Securities charges a high of Rs 25 or 0.01 per cent on outgoing shares, while Reliance Money and Geojit Securities charge a flat Rs 12. The depository participant (DP) of Bank of Baroda charges Rs 23 on outgoing shares.

With no regulation to control how much the DPs charge, investors can only hope that competition would bring down these charges someday.

“There is no regulation to control what the depository participants charge. One can only do what one is capable of, and that is what we have done by reducing the charges. It is a competitive world and it should be in their interests to reduce charges,” said C.B. Bhave, chairman and managing director of NSDL.

A CDSL official said that DPs could not be forced to reduce these charges as they have the risk of omission mistakes, like wrong entries, indicating that DPs could be justified in keeping a certain sum to make good for the loss incurred due to such mistakes.

“They charge ad valorem, a little higher as they carry the risk of wrong entries omissions,” said Cyrus Khambatta, assistant vice president of CDSL.