Rbi To Review Pd Set-Up

After taking an in-principle decision to discontinue the satellite dealers, the Reserve Bank of India (RBI) is set to review primary dealers (PDs) in terms of their number, obligations, activities and regulation, said Y V Reddy, deputy governor of the RBI.

Reddy was speaking on the occasion of Asian Bond Conference at Bangkok today.

He said that the apex bank has already taken a decision to bring the PDs under the supervision of Board for Financial Supervision of the RBI.

The deputy governor said that to provide greater thrust on market players with different perceptions, retailing of government securities assumes great importance. He prescribed: "A three-pronged strategy would seem ideal viz., a greater role by PDs in providing liquidity so that exit route is available always for the retail investor; banks and major custodians to facilitate investment and ease of transactions for retail demand; and establishing order-driven trading system in stock exchanges with adequate safeguards."

 

Reddy also said: "For development of the market and to encourage retail participation, particularly by mid-segment investors like urban co-operative banks, non-banking finance companies (NBFCs), trusts, etc., non-competitive bidding scheme allowing 5 per cent of the amount issued under select auctions by government was introduced in January 2002. The amount could be revised to 10 per cent keeping in view the response".

To provide hedging instruments to banks and other investors to minimise their interest rate risk a certain percentage of total government borrowings could be earmarked for floating rate bonds, he said.

The central banks has issued two tranches of floating Rate Bonds (FRBs) in November and December 2001.

Reddy also stressed on bringing in greater transparency, adequate disclosures, enhanced efficiency, and proper accounting standards in the private placement of corporate debt paper. He said: "As regards non-Government debt markets, the major issue of private placements will have to be squarely addressed sooner than later."