A Capital Niche

Recently the National Stock Exchange (NSE) appointed the Global Trust Bank (GTB) as its third clearing bank. The bank is now working out ways to start soon. Most of the clearing bank operations are being centralised at its Fort branch.

Says Diptesh Shah, general manager, Investment Banking at GTB: "The focus for capital market services will be on the retail investor." The bank is looking at the investor who is not a trader but somebody who wants professional service for dealing in his securities. "We are dedicating the Fort branch to capital market activities and clearing bank operations will be centralised at the Fort branch," says Shah. However, the other branches will also continue to provide capital market services and these branches will be linked to the Fort branch.

Under the Global Securities Banking scheme, the investor or trader can open a securities account with the bank. The client need not be an existing account holder with the bank in order to do this. The depository services also include services to brokers. A large number of broker clients (approximately 300) have opened their accounts with the GTB.

By becoming an NSE clearing bank, the bank will be extending total banking services to the broker community as well as to the brokers clients. "The services can be in the form of funded or non-funded facilities," explains Shah. The general manager looking at these operations feels that if a bank is a clearing bank it is in a better position to provide fund-based and non-fund based products to both brokers and investors. As a depository participant the bank is offering services towards security handling and as clearing bankers the banks is also handling the fund transactions.

The fund based activities include broker funding, loans against shares, guarantees to brokers, electronic fund transfer etc. The bank will charge a certain rate of interest for these activities. Non-fund based services would mean offering basic security-linked services. For the non-fund based services, the bank will be charging fee-based income depending on the kind of product concerned. In the depositories segment, the bank can provide custodial services, security transfers, pledge hypothecation and electronic fund transfer.

A clearing bank essentially carries out the fund settlement on behalf of the NSE. There are currently three clearing banks appointed by the NSE viz. Canara Bank, HDFC Bank and GTB. A broker has to have a clearing account with one of the three banks. All the three banks are connected to the NSE.

The transactions in the NSE are settled on a weekly basis today. These settlements are of two types, namely security settlement and fund settlement. The fund settlement is done through the clearing bankers who carry out the transactions on the instructions received from the NSE. The clearing bank facilities will be offered to all NSE brokers wherever Global Trust has its branches.

In addition, Global Trust plans to launch technology-based services aimed at retail members of the NSE. "This will involve leveraging existing technological strengths," says Shah.

Later, the bank will also look at syndications of securities. This means that if a company wants to place securities the bank can place them for it or buy them for it.The bank will also provide intermediation services to corporates. In the long run, according to the general manager, the bank intends to provide total solutions for the capital market. Banking technology can be used extensively in the capital market, he feels. "We intend to use the commercial bank as a plank to provide these services" he says.

The paid-up capital of the bank as of March 1997, stood at Rs 104 crore. In terms of investments, no huge sums are involved for transactions related to the capital markets. Most of the returns for the bank will come from the fee-based businesses that the bank will undertake.

By becoming an NSE clearing bank, GTB will be extending total banking services to the brokers as well as to their clients.