Retail investors face the prospect of paying higher account charges to depositary participants (DPs).
The possibility arises from the fact that DPs may have to pay higher premium to Indian insurance firms as foreign reinsurers have hiked their premiums in wake of the terrorist attack in the US.
This additional cost will be passed down to retail investors having accounts with DPs, market sources said.
Domestic insurance firms offer DPs a range of policies related to share trading, including custodian position, negligence on part of brokers and fraudulent activities.
Gagan Rai, executive director of National Depository Services Ltd, the largest DP service provider, said there was "every possibility" that the insurance premium paid by DPs would be increased.
NSDL signs up every year with a insurance company which charges the least premium. DPs, in turn, cough up the premium, which varies with their exposure, to NSDL as service charge. NSDL has 204 DPs across the country.
Currently, Oriental Insurance is the insurance company associated with NSDL and its contract expires this month.
Rai said the picture would be clear within a month, after offers from insurance companies were evaluated and a new contract was signed.
Central Depository Services Ltd (CDSL) and its participants are also likely to face the same problem. CDSL at present has a tie-up with New India Insurance. A CDSL official said the company, unlike NSDL, charges a fixed premium from its members for the insurance cover. CDSL has 166 DPs in the country.
The depository system facilitates holding of securities in dematerialised form and effects transfers by means of account transfers.
Transfer of ownership of securities is done through simple account transfers. This method does away with all the risks and hassles normally associated with paperwork.
