DCB, 4 others can`t trade directly

Five banks – Development Credit Bank (DCB), Catholic Syrian Bank, Dhanalakshmi Bank, Lakshmi Vilas Bank and Nainital Bank – cannot participate in the currency futures market directly as members of exchanges as they do not meet the Reserve Bank of India’s (RBI) norms.

Sources at some of these banks said they would be left with no option but to participate as clients of other banks that can trade directly on the exchange. The Bombay Stock Exchange (BSE), the National Stock Exchange (NSE) and Financial Technologies (FTIL), the MCX promoter, have sought the Sebi nod for starting currency futures trading.

Last week, RBI said banks will have to seek its prior approval for trading and only those with a minimum networth of Rs 500 crore, capital adequacy ratio of 10 per cent, net non-performing assets under 3 per cent and a three-year profit record can participate.

According to the Business Standard Research Bureau data, DCB had posted a net loss of over 80 crore in 2005-’06, while the others have a networth of less than Rs 500 crore – Dhanlakshmi Bank Rs 172 crore, Lakshmi Vilas Bank Rs 417 crore, Nainital Bank Rs 125 crore and Catholic Syrian Bank Rs 305 crore.

“Just because a bank meets the criteria, it will not commence activity. Working on currency futures needs strong a risk management culture. We also have to look at the profile of the clients as we have to get business and earn from this activity,” said Dhanalakshmi Bank Managing Director and CEO P S Prasad.

A senior DCB executive said banks that qualified for membership would be in an advantageous position. Clients will need to go to member banks and exchanges will demand margins that will add to the cost, the executive added.

“Banks are analysing the RBI guidelines and those banks that do not participate as members will be acting as clients. The income of these banks may take a slight hit,” added Partho Mukherji, senior vice-president (forex and treasury), Axis Bank.