CDSL would be the second depository to set up shop for trading in dematerialised stocks after the National Securities Depository Ltd (NSDL), which commenced operations in 1996. According to PV Maiya, managing director of CDSL, while BoB and BoI are expected to bring in Rs 10 crore each, HDFC Bank is likely to bring in Rs 5 crore.

BSE president JC Parekh said the State Bank of India (SBI) would participate in the project even though it is yet to make a formal application to the RBI. CDSL was incorporated in December 1997 with a start up capital base of Rs 100 crore.

The total number of promoters is expected to be around seven or eight, of which four are banks. The Depository Act stipulates that 51per cent of the equity should be held jointly by the promoters.

The depository project could have been flagged off earlier had it not been for the delay in getting an income tax exemption certificate from the Central Board of Direct Taxes (CBDT). Rule 17 (C) of the Income Tax Act requires a clearance certificate from the CBDT stating that BSE, as a Trust, was eligible for income-tax exemption as its equity contribution was in the nature of an approved investment.

BSE, who is the promoter of CDSL, is hopeful of carrying through its depository project at a capital cost of Rs 35 crore as against Rs 47 crore by Andersen Consulting.

Andersen Consulting had furnished a report to the exchange which said CDSL would be able to break-even in the first year of operations on 58 per cent lower volumes and 42 per cent lower tariffs than NSDL, the only other existing depository in India.

However, the report clearly states that below these levels of volumes, there will be an erosion in net worth.

The consultantshave placed an enormous amount of confidence on the ability of BSE to push through with changes in legislations if required due to "political clout" that it enjoys. The analysis by Andersen Consulting puts the average annual dividend payout at 10-12 per cent to its shareholders.

In a best case scenario, where volumes are 15 per cent lower than that of NSDL, the investment return in the first year is pegged at 10.4 per cent while profit after tax is projected at Rs 5.3 crore.

In the event of the BSE depository fixing NSDL equivalent tariffs but no custody charges, the return on investment in the first year would be 7.3 per cent while the PAT would be Rs 2.5 crore.

According to senior directors of the exchange, of the total equity corpus of Rs 110 crore, only Rs 40 crore would be kept open for the shareholders like stock exchanges, member brokers, depository participants, financial institutions and banks. The remaining would be brought in by the promoters.