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Demat accounts take a dip in times of booming market
November, 02nd 2006

For the first time this calendar year, net active demat accounts with National Securities Depository (NSDL) the countrys number one depository has fallen on a month-on-month basis.

According to the latest numbers posted on the NSDL website, net active accounts at the end of September have fallen to 77.10 lakh from 77.55 lakh in August, a drop of 45,000 accounts.

NSDL does not give details on gross additions and gross cancellation of accounts. But it is clear that there were far more cancellations during September than additions.

Over the last few months, there has been a slack in monthly net addition of demat accounts at NSDL. The growth in accounts was strong in January and February, with 1.5 lakh and 1 lakh accounts being added in the respective months.

But after the Securities and Exchange Board of India (Sebi) initiated action against market intermediaries alleged to have been involved in the initial public offerings (IPO) scam in April, growth in demat account registrations with NSDL slowed down.

Following the scam, Sebi made it compulsory for demat account holders to quote their permanent account numbers while opening a demat account. Existing demat account holders were asked to submit photocopies of PAN cards before October 1 this year. This date was subsequently revised to December 31.

The IPO scam was orchestrated by a set of individuals who opened multiple demat accounts and then cornered shares reserved for retail investors in the issue.

Interestingly, Central Depository Services (CDSL) second to NSDL in terms of demat accounts has been witnessing a net addition of around 50,000 accounts every month.

CB Bhave, managing director of NSDL, did not appear too concerned with the recent slackness in new account registrations. He felt the depository would make up for the average performance in coming months. Both depositories have been on a scrutiny overdrive.

This has led to the closure of several thousands of accounts. But market watchers say that PAN being made compulsory is making account opening procedure complicated.

Although they add this is a positive development in the sense that only genuine investors would now want to go through the process of scrutiny.

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