Detailed Rationale

Crisil Ratings has reaffirmed its ‘Crisil AAA/Stable/Crisil A1+’ ratings on the bank loan facilities of NSE Clearing Ltd (NSECL) and its 'Crisil AAA/Stable’ corporate credit rating on the company. The rating indicates the highest degree of strength with regard to honouring debt obligation.

 

The ratings continue to reflect NSECL’s strategic importance to, and the strong support from, its parent, National Stock Exchange of India Ltd (NSE). The ratings also factor in NSECL’s comfortable capital position and comprehensive risk management systems. These strengths are partially offset by volatility in revenue and exposure to risks arising from the predominantly fixed cost structure of operations inherent in the clearing business.

 

NSECL witnessed significant operational changes over the past few years on account of new regulations such as measures to strengthen equity index derivatives framework and T+0 rolling settlement. The company has developed systems and processes to implement these regulations and has managed operations smoothly.

 

The corporation has high technological strength and strong capitalisation on account of a large core settlement guarantee fund (SGF), which rose to Rs 11,764.9 crore as on February 28, 2025, from Rs 6,882 crore a year earlier. The strong risk management practices and higher core SGF provide comfort to majority of the institutional clients in ensuring smooth clearing and settlement through NSECL.

 

NSECL remains well-capitalised, with a networth of around Rs 4,450 crore as on December 31, 2024, against Rs 3,058 crore as on March 31, 2024 (Rs 1,227 crore as on March 31, 2023). The company does not have any fund-based debt obligation. The networth has increased significantly over the past couple of years on account of healthy accretion to reserve. The profit after tax (PAT) stood at Rs 1,392 on a total income of Rs 2,299 crore for the first nine months of fiscal 2025, compared with Rs 1,306 crore and Rs 2,189 crore, respectively, for fiscal 2024.

Key Rating Drivers & Detailed Description

Strengths:

• Strong support from the parent given its strategic importance: NSECL is a strategically important, wholly owned subsidiary of NSE. It provides clearing and settlement services for trades executed in the capital market, futures and options (F&O) and currency derivatives segments of stock exchanges. It also provides clearing and settlement for trades executed on the NSE in the new debt and commodity derivatives segments. Furthermore, it assumes counterparty risks of members and guarantees financial settlement. This helps stock exchanges isolate operations from risks related to settlement and clearance. The company has constantly upgraded clearing and settlement procedures, bringing India’s financial market in line with the international markets. In fiscal 2021, it implemented new systems and processes relating to share pledging, peak margin reporting and upfront margin collection. In fiscal 2022, NSE undertook changes pertaining to the new framework introduced by the Securities and Exchange Board of India (SEBI) after a trading halt on NSE on February 24, 2021. In fiscal 2023, the company took steps to put in place a proper system and procedures for smooth introduction of segregation and monitoring of collateral at the client level and T+1 settlement cycle. In fiscal 2024, it introduced direct clearing and settlement through UPIs, T+0 settlement rollout, options trading on existing future contracts in the commodities segment and efficiently implemented operational procedures for upstreaming of client funds collateral to the clearing corporations.

 

There has been rapid growth in the overall turnover over the past few fiscals on account of higher participation and launch of new products. NSECL’s growth and turnover are related to NSE as it derives most of its earnings from the parent. NSE’s turnover in the F&O segment stood at Rs 79,928 lakh crore for fiscal 2024, up almost 109% on-year. In the first nine months of fiscal 2025, NSE’s turnover in the F&O segment stood at Rs 66,005 lakh crore. The turnover in the cash market segment rose 51% on-year in fiscal 2024 to Rs 201 lakh crore and to Rs 222 lakh crore in the first nine months of fiscal 2025. High volatility in the cash and derivatives market resulted in a huge upswing in trading volume.

 

Crisil Ratings believes the close operational, managerial and financial linkages, common brand and sole ownership of NSECL by NSE imply a strong moral obligation on the parent to support its subsidiary.

 

• Comprehensive risk management systems: The systems are regularly upgraded to pre-empt market failures. The company has stringent norms for selection of members and maintains a robust surveillance mechanism for monitoring risk-based position limits and margins maintained by clients. Also, in line with SEBI guidelines issued on August 27, 2014, NSECL has created a sizable SGF, aimed at managing a corpus of adequate funds for each segment (for instance cash and F&O) to guarantee the settlement of trades that are executed. If a clearing member fails to honour settlement commitments, the core SGF shall be used to fulfil the obligation and complete the settlement without affecting the normal process.

 

While NSECL was maintaining an SGF on its own, the core SGF maintained as per the SEBI guidelines is more comprehensive and rigorously enforceable. As per SEBI, the core SGF is the corpus of funds that should be adequate to meet all contingencies arising from failure of payment by any member. The risk or liability to the fund depends on various factors such as trade volume, delivery percentage, the history of defaults and the degree of safety measures employed by the clearing corporation or stock exchange. To ensure effective distribution of responsibilities among the exchange, clearing corporations and clearing members, SEBI has prescribed the level of contribution by each of the counterparties.

 

The core SGF corpus can be invested only in fixed deposits with banks (only those banks which have a minimum networth of Rs 10,000 crore and are rated ‘AA’ and above) or in highly liquid securities such as treasury bills, government securities and money market/liquid mutual funds. As of February 2025, NSECL had a core SGF of Rs 11,764.9 crore.

 

• Comfortable capital position: NSECL continues to enjoy strong capital position. The networth rose to around Rs 4,450 crore as on December 31, 2024, from Rs 3,058 crore as on March 31, 2024. As the company does not have any fund-based debt obligation, adjusted gearing (inclusive of fee-based limits) remained strong below 1 time as on March 31, 2024.

 

Weakness:

• Variable revenue, linked to large fixed-cost structure: NSECL derives most of its earnings from NSE and its growth and turnover are closely related to those of the exchange. Its cost structure has a high fixed cost component with technology infrastructure and payment to employees accounting for a bulk of the cost. On the other hand, the earnings of NSECL are inherently linked with the trading turnover on NSE. As NSECL must incur fixed costs irrespective of revenue, the operating leverage remains high, and this will continue over the medium term.

Liquidity: Superior

As on December 31, 2024, the company had unencumbered cash and equivalents, and liquid investments of Rs 1,054.5 crore. In addition, it had Rs 9,765 crore in the form of undrawn cash credit/working capital demand loan. The company has no fund-based debt obligation.

Outlook: Stable

Crisil Ratings believes NSECL will maintain its strong market position due to its association with NSE and will sustain its comprehensive risk management systems and adequate core SGF commensurate with the clearing volume, over the medium term.

Rating sensitivity factors

Downward factors:

• Downward change in Crisil Ratings credit view on NSE
• Diminution in expected support from NSE, because of significant decline in the ownership (falling below 51%) or in strategic importance of NSECL to NSE 
• Significant deterioration in the settlement guarantee fund from the current level
• Significant deterioration in the earnings profile of the company, impacting the capital structure

About the Company

NSE Clearing (formerly, National Securities Clearing Corporation Ltd), a wholly owned subsidiary of NSE, was incorporated in 1995 to foster investor confidence in clearing and settlement of securities, promote short and consistent settlement cycles, provide counterparty risk guarantees, and operate rigorous risk containment systems. It commenced clearing operations in April 1996 and is presently engaged in the clearing and settlement of currency F&O, interest futures and corporate bonds. About NSE NSE, India's leading stock exchange, was set up by the country's prominent financial institutions to provide a modern, automated, screen-based trading system with national reach. Incorporated in 1992, NSE commenced operations in the wholesale debt market in 1994. Its operations in the equity and derivatives segments commenced in November 1994 and June 2000, respectively. NSE was the first exchange to receive approvals from SEBI and the Reserve Bank of India for trading in currency derivatives and interest rate futures; the exchange had a market share of 92.8% and ~99% in the cash and derivatives segments, respectively, during fiscal 2021. It helped to transform the microstructure, market practices, and trading volumes in the Indian securities market.

Key Financial Indicators (NSECL)

As on/for the period ended March 31	Unit	9M-FY25	2024	2023	2022	2021
Total assets	Rs crore	NA	35726	12541	15492	14049
Total income	Rs crore	2299	2189	1015	729	556
Profit after tax	Rs crore	1392	1306	530	450	201
Gross NPAs	%	NA	NA	NA	NA	NA
Adjusted gearing	Times	Nil	Nil	Nil	Nil	Nil
Return on networth	%	49.4*	61.0	46.0	51.6	31.6

*Annualised and approximately

Any other information: Not Applicable