Banks and broking companies forced to hard-sell demat accounts due to lack of business

MUMBAI: The number of demat accounts with the country's two leading depositories, NSDL and CDSL, has grown substantially, despite unfavourable market conditions in the current year.

Driving the growth are banks and broking firms which have been offering a free demat account facility to existing clients and prospective investors as part of their marketing efforts.

Higher number of accounts, however, has not led to any improvement in participation of retail investors, as most of them continue to shy away from trading amid concerns over uncertain market conditions, according to brokers. As a result, many demat accounts are lying inactive continuously for the past many months.

Since January this year, NSDL, the largest among the two depository services providers, has added 4 lakh new accounts, taking its tally to 1.17 crore at the end of June.

CDSL has recorded a growth of over 12% to 76 lakh accounts in the last one year. Demat account is opened to hold shares in dematerialised or electronic form. It does away with the problems (such as theft, forgery and loss in transit) associated with holding shares in physical form.

"Many brokers are trying to convince prospective investors to open demat accounts because they are not getting enough business from their existing clients. Some of them are even giving out free accounts to win clients," saidDestimoney Securities president Sudip Bandyopadhyay. "Higher demat accounts, however, have not given a leg-up to falling trading volumes, as less than 10% of demat account holders trade on a regular basis in the current market," he added.

Declining volumes have prompted a host of brokers, includingKotak Securities,Sharekhan,Anugrah Finance,Unicon Financial andNirmal Bang, to offer free demat and broking accounts to acquire new clients. Investors need to pay only a margin amount of money and registration charges while opening demat and trading accounts. Many brokerages, in fact, have slashed margin money which used to be in the range of Rs 5,000-10,000 a couple of years ago.

"New client addition is happening at a good pace with a 10-15% growth every year irrespective of the market cycle," said Vinay Agrawal, executive director, equities broking,Angel Broking. "The point of worry, however, is that active participation has come down 20-25% over the past one year," added Agrawal.

Large banks like SBI,ICICI Bank,Axis Bank,HDFC Bank and IDBI Bank are offering three-in-one trading accounts to their banking clients. A three-in-one account is one where savings and demat accounts are linked to an online trading account. Trading charges and other incidental expenses are linked to the volumes generated by investors.

If an investor is a high-volume trader, he or she needs to pay very low trading and demat charges. Brokers feel the market needs a big trigger to boost retail participation which will help revive their fortune.

Source: EconomicTimes