The approvals from these global custodians have followed a similar approval granted by the leading global custodian, Morgan Stanley Trust. "Almost all the top global custodians have now given their go-ahead to their FII clients operating in the country. This has paved the way for over 300 FIIs opening accounts with us. The approvals have come through over the past few months," said NSDL managing director CB Bhave.

According to Bhave, FIIs which are registered with Sebi having some holding, have opened a depository account with NSDL.

"There were several FIIs which were restricting their Indian equity market's exposures only through GDRs for obvious settlement bottlenecks. With the approval from the global custodians coming through, one should expect a spate of FIIs now investingin domestic markets", said Bhave.

The move assumes significance considering that there are only about 30-40 active FIIs in the country out of a whopping 496 which have got themselves registered with Sebi.

These FIIs have refrained from actively participating in the domestic market owing to the rather primitive paper-based settlement system prevailing in the country.

Global custodians worldwide have been rather sceptical about giving approval to their FII clients in investing in emerging markets, if the market infrastructure is not proper.

The Securities & Exchange Commission of the US, had, late last year, given the go-ahead to the US-based FIIs to settle their trades through NSDL in India. Global custodians had, however, been taking time in carrying out their due-diligence exercises. Bhave added that the spate of book closures coming up in companies will lead to a lot of shares being dematerialised as all investors, who want to earn economic benefits by transferring the shares in their name are goingto prefer to do the same through the depository as it will be much cheaper, easier and faster. "This is the reason why there is a premium on the Reliance share in the demat segment recently. The same trend will extend to other scrips as well, as and when their book closures draw near," he said.

On the spread of the base of investors who have opened depository accounts with NSDL to over 250 centres, despite their being relatively few depository participants, Bhave said this only proves how the market had till now underestimated the disgust among small investors regarding bad paper in the market.

"We ourselves could not believe it when we found out that our investor base is spread across 250 centres and some of these centres do not even have a DP outlet. Investors have gone to other places to open accounts," said Bhave.