Gilt Sec Not To Split Commission

The move towards not paying any commission to banks comes as a direct reversal of the trend followed till recently, when some PDs were reported to be paying commission even to the extent of 50 paise of the Re 1 at government securities auctions.

At the October 7 sale of the four-year zero coupon bonds, GSTC did not pass on commission to the banks and also did not sell the paper at reduced prices in the secondary market.

"We will be retaining the whole commission for tougher times viz. when rates in the inter bank money markets tighten," said a source at GSTC.

The passing on of commission even in the form of better pricing in the secondary market is leading to a distortion in the yield curve of securities.

This has been brought to the notice of the RBI by many banks recently. Some of the other PDs will, however, continue to pass on the commission through better secondary market prices.

The zero coupon paper which was put for sale on October 7, at a price of Rs 60.66 was already trading at a discount in the secondary market. The secondary market price, the next day was reported to be Rs 60.25/35 levels.

The Reserve Bank of India put up the zero coupon for sale at its purchase window at a price of Rs 60.76. Since the paper was available at much better prices in the secondary market, the banks preferred to pick it there rather than from the central bank's purchase window. At the sale of the zero coupon bond held on October 7, the apex bank picked up Rs 454.26 crore worth and primary dealers picked up Rs 52.73 crore worth of the Rs 2,000-crore issue.

Sources at Securities Trading Corporation of India also said the PDsdid not pass on any commission to banks in the recently held sale of the four-year zero coupon paper. Sources at SBI Gilts, a subsidiary of the State Bank of India, also stated that the they did not accept bids on behalf of banks.