Pds Step In To Bail Out Cooperative Banks

Primary dealers (PDs) are going all out to bail out co-operative banks, which have been asked to stay clear of brokers following the government securities scam. This follows the Reserve Bank of India's (RBI) instruction to PDs to see how best they can help the cooperative banks.

IDBI Capital Markets has set up a separate team to cater to this segment. It will educate and explain the entire trading process to novice banks. Said IDBI Capital Markets' managing director G V Nageswara Rao: "Business from co-operative banks has increased as awareness is seeping in that deals need to be in a demat mode."

PDs are re-organising themselves to cater to the new demand, as they "hand-hold" cooperative banks. "We have received a number of enquiries from cooperative banks for trading and investing in gilts. We have thus intensified our association with them, and have set up a special team," said ICICI Securities and Finance Company (I-Sec) head, fixed income group, Nitin Jain. I-Sec was actively working with cooperative banks last year as well, which attributed for trades to the tune of Rs 4,000 crore.

R V Joshi, managing director of Securities Trading Corporation of India (STCI), said that, while the PD does not have an exclusive team in place, "as volumes pick up, we might decide to set up a special team".

Catering to demand from cooperative banks, PDs are readily agreeing to offer smaller than market lots (Rs 5 crore) in gilts. "We are one of the active players working in small lots. Hence, we can work with cooperative banks better," said Rao.

Even as primary dealers are eyeing this market with greater enthusiasm compared to last year, with brokers being excluded from the gilts market, it will be not feasible for smaller cooperative banks in rural towns to get the best deal in their investment in government paper.

"PDs will not serve them as they may not be able to give the right two-way quote," said one dealer.

IDBI Capital Markets' Rao, however, feels otherwise, stating that it is not necessary for PDs to set up centres in small towns. "As settlement takes place in large centres, and cooperative banks have opened constituent statutory general ledger accounts with banks, they only have to make a call to find out the price," said Rao.