Banks Rush For Pf Accounts As Sgl Facility Is Withdrawn

Some time back, the Reserve Bank had told provident funds that their SGL accounts would be closed as there was a shift to the delivery versus payment system.

Even though the SGL accounts of provident funds were supposed to be closed on March 31, 1996 some PFs still continued to operate the SGL. However, last month the provident fund commissioner wrote to provident funds to close their SGL accounts. This has lead to a rush of banks trying to grab the accounts of PFs. In fact, even primary dealers are trying to get the accounts of provident funds.

TimesBank is one of the banks trying to grab the PF account. As of now, TimesBank has already grabbed around 40 accounts.

 

Sources point out that quite a lot of foreign banks too have grabbed the PF accounts, after the SGL facility was withdrawn for them.

In primary dealers, Securities Trading Corporation of India is also planning to do business with PFs. Reserve Bank had earlier asked PFs to close their SGL accounts as they did not have a current account. The SGL account hold the securities of banks and other account holders and current account hold the cash component.

Historically, PFs had only an SGL account and no current account. This worked fine till such time that the delivery versus payments systems was not in place. However, once the system was in place, Reserve Bank asked PFs to move out of the SGL as the lack of a current account hampered the functioning of the delivery versus payment system.

Commercial banks are offering constituent SGL accounts to PFs, which are essentially sub accounts of the banks.

Under this system PFs have the advantage of scripless trading that the SGL offered and also the benefit of the delivery versus payment system.

Banks, on the other hand, are able to retail their securities to PFs. Sometime back, Corporation Bank had begun retailing gilts from its books to PFs. With commercial banks holding excess SLR, they prefer to offload gilts when the interest rates are down. With interest rates forecast to come down, banks are aggressively targeting PFs.