NSDL & CDSL: How KRA Charge Reduction Is Set to Pressure Revenue and Margins

Synopsis: NSDL and CDSL are in focus after their KRA arms cut fetch rates by 20%, potentially impacting transaction-based revenues. Analysts estimate a 5–6% EBITDA impact due to the pricing revision. The move has raised concerns over margin pressure, especially for CDSL, where KRA contributes to the topline.

The depository majors in India, NSDL and CDSL, are currently observing interest from investors due to a change in the KYC-related fees by their respective KRA subsidiaries. The change is related to the fees that brokers and other intermediaries pay for accessing the KYC details of investors. As the KRA business is an important source of revenue, especially for CDSL, it is expected that this change will impact the profitability in the short term.

KRA Charge Cut May Pressure Depository Margins

The recent change in KRA (KYC Registration Agency) fees by NDML (NSDL’s KRA subsidiary) and CVL (CDSL’s KRA subsidiary) is a significant pricing change in the depository space in India. The fetch rate, which is the cost incurred by the intermediaries like brokers or mutual funds when they extract the existing KYC information of an investor, has been lowered by 20% to Rs 28 from Rs 35. 

Secondly, the fees associated with KYC formation, modification, and status checks have been made more rational, which indicates that there is a restructuring of the fee structure of the KRA. The fetch rate is a validation fee that is incurred every time a new intermediary accesses an existing KYC registration. As this is a transaction-based income stream, the reduction will have a direct effect on the transaction-based revenues of the depositories. 

Specifically, for CDSL, the CVL KRA business generates almost 20% of its topline business, and hence the sensitivity to earnings is more apparent. Although NSDL’s business is relatively more diversified, it is also subject to the same marginal pressures of reduced KRA income. Analysts believe that this consolidation may lead to a 5% to 6% effect on EBITDA for both the companies. 

The high operating leverage in the depository business, where marginal business comes with high margins, means that even a small cut in pricing may have a significant effect on profitability if the volumes do not compensate for the same. The introduction of the new charges will come into effect from April 1, and this will give a clear indication of the time frame in which the financial impact will be felt. The stock price movements indicate a cautious approach. The CDSL stock has moved down and is substantially lower than its 52-week high, while the NSDL stock is trading around its IPO price after correcting from the listing highs.

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