The popularity of debt instruments among investors is evident from the rapidly increasing turnover in the debt market. The debt market in India is also poised to grow rapidly with the emergence of new players, like money market mutual funds, gilt and debt funds, insurance companies, private sector banks etc. Accent on securitisation of debt has also enabled introduction of many new debt products. In terms of an RBI directive, it is now mandatory for banks, financial institutions, primary dealers and satellite dealers to hold Commercial Papers (CPs), Certificate of Deposits (CDs), Bonds and Debentures in demat form. This would mean that the existing investment in debt instruments is converted into demat form and the new investment is made in demat form only. RBI has also made it mandatory for non-banking financial companies (NBFCs) to hold their investments in government securities /bonds only in dematerialised form. NBFCs can open their demat account with any of the depositories subject to their reporting it to RBI within a week.

While most of the issuers of debt instruments prefer to admit debt securities in both the depositories, there are still quite a few issuers who are not aware of the benefits of admitting their debt securities in both the depositories. Like equity, the admission of debt securities in both the depositories improves marketability of the securities as it enhances the liquidity of the instrument leading to better price discovery and also offers an opportunity to accountholders with either depository to invest in these instruments. CDSL's Depository Participants, mostly banks and many FIs, who are holding these securities in physical form, have expressed their desire to demat their securities through CDSL. Since, the debt instruments issued by some of the issuers are not admitted into CDSL system, the investors are unable to either dematerialise their physical holdings or receive credit of securities in demat mode through their demat account maintained with the CDSL system.

Considering the concern of investors, Securities & Exchange Board of India (SEBI) vide its circular no. 13, dated November 1,2002 has directed that all debt instruments be mandatorily admitted on both the Depositories.

Unlike equity, where stamp duty in physical transfer is uniform throughout the country, the incidence of stamp duty on transfer of physical debt instruments differs from state to state. Since transfer of securities in demat form is exempted from the payment of stamp duty, dealing in debt instruments would enhance the yield on investments in debt instruments. Dematerialisation of debt instruments is therefor more important than the equity segment where demat has significantly transformed the market place.