Kotak, Reliance Keen On Satellite Pds

Kotak Mahindra Capital Company, India Securities, Reliance Capital and DSP Financial Consultants have decided to set up satellite dealerships (SD) in government securities. They will move the Reserve Bank soon for permission to enter the sector.

These companies decided to enter the satellite system following a decision by the Reserve Bank not to permit them into the primary dealer system. The Reserve Bank has decided to restrict the number of primary dealers.

The guidelines mention that the SDs may deal in government securities among themselves, with primary dealers or with others. SDs can also participate in auctions. Under these circumstances, these players do not see much of a difference between SDs and PDs.

A number of corporates had applied in mid-1995 for primary dealership (PD) licences. Apart from the above mentioned, Prudential Capital, CRB Group and Times Guarantee had also applied for PD licences and will now be applying for SDs.

After the announcement of the guidelines, there was a rush to get SD application forms. Sources said that a large number of existing PDs were also keen to get a copy of the application form.

Kotak Mahindra Capital senior vice-president Shekhar Sathe said the company would shortly be going to its board to get an approval for satellite dealership. The last date for the submission of application forms is January 31.

The corporates who had earlier applied for PD licences are viewing the satellite dealership as a means to graduate into primary dealership. Ceat Financial which has recently started offering two-way quotes in the government securities market will also apply for satellite dealership. The SDs have an advantage over PDs as there is no underwriting obligation, nor do they have to perform in auctions, sources said.

The guidelines issued by the RBI mention that the SDs are expected to further strengthen the infrastructure in the government securities market, enhance liquidity and turnover in government securities and provide a retail outlet for government securities, thereby encouraging voluntary holding of gilts.

Tying up with a PD may prove difficult. RBI has been considering two models to develop the satellite dealership network. One is to have a list of accredited satellite dealers who can deal with any of the PDs. The second option is to have each SD attached to a single PD. Though the first approach would give greater degree of competition, the second approach, according to RBI sources, would be more practical.