Long term effects of demonetisation 'unclear', says CDSL

Flagging concerns over demonetisation of high value currencies, leading securities depository CDSL has said the long term effects of the measure on the economy as well as its operations are "currently unclear".

Stock exchanged BSE-promoted Central Depository Services (India) Ltd (CDSL) has cited uncertainties related to government's demonetisation move as a risk factor in the draft paper filed for its proposed IPO -- through which it plans to sell over 3.5 crore shares.

In an unexpected move by the government aimed at dealing with corruption and black money, Rs 500 and Rs 1,000 notes ceased to be legal tender from November 8 midnight.

According to CDSL, the immediate impact of these measures has been a decrease in cash liquidity, which may cause a short term reduction in the purchase and trade in securities by the public.

CDSL noted the long term effects of these measures on the Indian economy, on the markets for securities and its operations in particular are currently unclear.

"... There can be no assurance that this will not have any impact on the Indian economy and investment in the Indian capital markets in general and on our business in particular.

"Any slowdown in the Indian economy or reduction in investment in securities in India as a result of this may adversely affect our business, results of operations, financial condition and prospects," the company said.

As per the Draft Red Herring Prospectus (DRHP), four stakeholders -- BSE, SBI, Bank of Baroda and the Calcutta Stock Exchange -- would be selling stakes in CDSL through the initial public offer.

Little over 3.5 crore shares would be offloaded through the Offer for Sale (OFS) route and out of the total, 7 lakh shares would be reserved for employees.

The draft papers were filed by CDSL yesterday.

BSE holds 50.05 per cent stake in CDSL. Other major shareholders in the company are State Bank of India, HDFC Bank, Standard Chartered Bank, Canara Bank, Bank of India, Bank of Baroda, Life Insurance Corp, Union Bank of India and Bank of Maharashtra.

Textbook publisher S Chand, which filed its DRHP earlier this month, also mentioned the uncertainty of impact of the withdrawal of banknotes in the list of risk factors.

S Chand said demonetisation has created certain liquidity issues for cash transactions which is expected to continue in the short-term.

"We are unable to quantify the impact of demonetisation on our business or the Indian economy and make no assurance whether or not such demonetisation could materially and adversely affect our business, results of operations and financial condition," it added.