India’s market regulator, SEBI, has given National Securities Depository Limited (NSDL) an additional four months until July 31, 2025 to comply with the rule that restricts any single entity’s ownership in market infrastructure institutions to 15%. The deadline was going to be much earlier, but this extension gives NSDL more time to carry on with its much-hyped initial public offering (IPO).

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Why Does SEBI Have an Ownership Cap?

In 2018, SEBI had brought a regulation that capped ownership in market infrastructure institutions (MIIs), such as exchanges, at 15%, for any single entity. This rule was established to encourage diversified ownership and mitigate systemic risks. NSDL-scaled up efforts to comply with the deadline extended due to issues with adhering to the initial October 2023 timeline that companies were required to meet.

Who Owns NSDL Right Now?

As of October 2024, here’s how NSDL’s ownership is split:

• IDBI Bank: 26%
• National Stock Exchange (NSE): 24%
• Union Bank of India: 5.6 million shares
• State Bank of India (SBI): 4 million shares
• HDFC Bank: 4 million shares
• SUUTI (Specified Undertaking of the Unit Trust of India): 3.41 million shares
   

IDBI Bank and NSE both exceeded the 15% cap, which means they must reduce their stakes to comply with SEBI’s standards.

The IPO: A Strategy to Meet Regulations

NSDL IPO said it will consider an IPO as the OFS. That means existing shareholders will sell their stakes to the public rather than exercising an option to buy new shares, decreasing their ownership on the whole. The plan to sell 57.3 million shares is broken down as follows:

• IDBI Bank: 22.2 million shares
• NSE: 18 million shares
• Union Bank of India: 5.62 million shares
• SBI: 4 million shares
• HDFC Bank: 4 million shares
• SUUTI: 3.41 million shares
   

This move stipulated that major shareholders must reduce their holdings to adhere to SEBI’s 15% cap.

Regulatory Hurdles and Delays

NSDL had filed its draft red herring prospectus (DRHP) in July 2023, however, it did not go as planned. There were several delays in getting SEBI’s approval, which left the DRHP in limbo between August and December 2023. SEBI issued its first and final observations only in September 2024. Coming on the back of such missteps, the July 31, 2025, deadline for compliance of the company’s new IPO timeline, now appears even more critical.

NSDL’s Financial Health and Market Role

Despite these delays, NSDL has been financially strong. In FY23 (ending March 31, 2023):

• Revenue jumped to ₹1,021.98 crore, up from ₹761.10 crore the previous year.
• Total expenses stood at ₹789.93 crore, leaving a comprehensive income of ₹237.11 crore.
• NSDL managed over ₹500 trillion in assets under custody, highlighting its key role in India’s financial sector.
   

What This Means for Stakeholders

• For NSDL: The IPO will help meet SEBI’s regulations, improve corporate governance, and bring in public investors.
• For Shareholders: Institutions like IDBI Bank and NSE will comply with SEBI rules while restructuring their investments.
• For Investors: The IPO presents a chance to own a stake in one of India’s most critical financial institutions with a proven growth record.
   

Final Thoughts

SEBI extending NSDL’s deadline for compliance is a wise step given the difficulties of reworking ownership post a default. With the IPO on the anvil now, NSDL has an unencumbered path to fulfil SEBI’s requirements but also remaining robust in India’s financial infrastructure.