The downturn in stock markets has proved to be a double whammy for the two depositories -- National Securities and Depository Limited and Central Depository Services Limited.
The two depositories have not only seen lower rate of growth in the number of new dematerialized accounts in 2008-09, but have also witnessed a sharp spike in non-operational ones during the period.
The total number of demat accounts grew from 14.7 million to 15.2 million, a rise of only 7.8 per cent, as against 38.23 per cent spike during 2007-08. And the combined value of securities held at the two depositories fell to a little over Rs 35 lakh crore (Rs 35,000 billion), as compared to about Rs 48 lakh crore (Rs 48,000 billion) at the end of March 2008, reflecting the sharp correction in the value of stocks.
The year 2007-08 was an especially good year when investors had opened 4.1 million accounts to invest in IPOs and in the secondary market.
"There was a huge surge in the number of accounts during 2007-08 as markets were flooded with IPOs. Brokers also offered free demat accounts during this period," said Anup Bagchi, executive director at ICICI Securities, which is the largest player in the demat segment with over 1.8 million accounts.
However, once the IPOs dried up and the secondary market turned unattractive, a large number of investors did not even renew their accounts. And, many investors simply sold off their remaining shares when brokers approached them to renew.
Market experts said on an average around 80,000 accounts were opened every month during 2008-09 as against 0.3 million accounts monthly in the previous financial year.
"Investors are closing their accounts as brokerage houses have started levying annual maintenance charges. Even the depositories have increased their transaction fees. We currently open about 25,000 accounts on an average per month as compared to over 40,000 accounts during 2007-08," said a products' head at a large securities house.
Even the number of operational accounts has gone down quite drastically. Industry experts said that barely 30 per cent of these accounts were operational at present. In the previous two years -- 2006-07 and 2007-08 -- around 60-70 per cent of the accounts were active.
However, the good news is that the number of frozen accounts has been declining since 2007 after the Securities and Exchange Board of India made PAN mandatory for holding demat accounts. At present, about 0.6 million demat accounts stand frozen, down from 3.3 million in March 2007.
