Foreign banks await detailed guidelines to merge PDs

Primary dealers (PDs) promoted by foreign banks are learnt to be reviewing their business in India.

The Reserve Bank of India (RBI) had announced in its monetary policy that permitted structures of PD business will be expanded to include banks which fulfil a minimum criteria. Detailed guidelines, however, are awaited.

Sources say most foreign banks want to merge back their PD business into themselves and run it as a division. This will enable the government to carry on its borrowing programme smoothly.

And also PDs will not have to run their business as a separate subsidiary incurring additional costs and show losses in a rising interest rate scenario.

According to the sources, PDs promoted by foreign banks under the aegis of the Primary Dealers' Association of India have sought the RBI's permission to run the primary dealer business as a division of the bank.

Faxed queries to Standard Chartered Bank, ABN Amro Bank and HSBC Bank on their plans for proposed restructuring of the PD business did not elicit any response.

While Deutsche Bank Securities declined to comment on the issue, Bank of America said it does not respond to any speculative queries.

V Subbaraman, managing director, Citicorp Capital Markets Ltd, pointed out, "In the monetary policy announced on April 28, the RBI has mentioned the possibility of allowing banks to turn primary dealers. On availability of more information and clarity on guidelines and regulations, we will evaluate all implications and accordingly take a decision."

A JP Morgan spokesperson confirmed that his institution is "awaiting detailed guidelines from the RBI in this regard and would be in a position to evaluate such an option only after such information is available to us".

The sources added that while it will save operational cost, the PD division being a part of the main bank will need no separate permission for either bringing in additional funds from parent or repatriating the profits to the parent.

Most importantly, it will solve the main problem of getting the permission for diversifying, said a source. This is because being a part of the bank they can either deal in equity or derivatives, albeit within the given ceiling.