Shriram Finance seeks RBI approval for primary dealership licence

Shriram Finance, one of the largest non-banking financial companies (NBFCs) in the country, is eyeing a standalone primary dealership (PD) licence from the Reserve Bank of India (RBI), to underwrite auctions of government securities, according to multiple people in the know.

 

RBI is very selective about granting PD licences. If granted, Shriram Finance will be one of the first non-bank entities to receive a PD licence in recent times.

 

DSP Finance, the NBFC arm of Hemendra Kothari’s DSP Group, is also planning to apply for a PD licence, sources said. The NBFC currently offers loans against mutual funds and structured loans, and is in the process of offering loans against shares.

 

Shriram Finance, last week, disclosed to the exchanges that it has received RBI’s approval to acquire 100 per cent equity in Shriram Overseas Investments (SOIPL) from Shriram Investment Holdings. Umesh Revankar and Parag Sharma have been appointed directors on SOIPL’s board.

 

The PD business is a low-margin but zero-risk business, said a source close to the development, adding that Shriram Finance has a large investment book and wants to build expertise in trading, which could be one of the reasons for seeking a PD licence.

 

“Shriram Finance is in a silent period leading up to the earnings announcement and is unable to provide any comment,” the lender said in response to Business Standard’s query.

 

PDs are market-makers in government securities, responsible for supporting auctions for issuance of dated government securities (g-secs), treasury bills, and cash management bills. These are also referred to as merchant bankers to the Government of India, as these are the only entities authorised to underwrite primary issues of g-secs.

 

RBI introduced the PD system in the g-sec market in 1995, with independent entities initially undertaking PD activities. To broaden the PD system, banks were allowed to engage in the PD business departmentally starting in 2006-07. 

 

Standalone PDs were permitted to diversify into other business activities, beyond their core PD functions, subject to specific conditions.

 

Currently there are seven standalone PDs in the country, and 14 bank primary dealers. Standalone PDs need to be registered as an NBFC for at least one year prior to the submission of application.

 

The standalone PDs are: ICICI Securities Primary Dealership, Morgan Stanley India Primary Dealer, Nomura Fixed Income Securities, PNB Gilts, SBI DFHI, STCI Primary Dealer, and Goldman Sachs (India) Capital Markets.

 

The bank PDs are: Bank of America NA, Bank of Baroda, Canara Bank, Union Bank of India, HDFC Bank, Citibank NA, HSBC, JP Morgan Chase Bank NA, Kotak Mahindra Bank, Standard Chartered Bank, Axis Bank, IDBI Bank, Deutsche Bank AG, and Yes Bank.

 

“The amount of issuances has grown many fold but the capital in the PD ecosystem has not kept pace,” said a market participant, adding that there is a need for capital in the system and the RBI recognises this. 

 

A good, active PD system needs more standalone primary dealers as seven is not adequate for the amount of issuances, he said.

 

Shares of the lender closed at ₹646, up 5.21 per cent on Tuesday on the National Stock Exchange.