Forex Brokers Look For Revival On Back Of Foreign Tieups

Struggling Indian foreign exchange brokerages could get a lease of life through a spate of tie-ups with international forex brokers.

Several foreign firms are looking to increase their presence in emerging markets, including India, to broadbase operations. The list of majors eyeing India includes UK-based firms Marshall, Exco, Harlow Butler and Tullet.

The tie-up plans of foreign forex brokers are sweet music to the ears of the domestic industry, which has been facing a severe squeeze on profit margins. The brokerage income of leading Indian firms fell from an average of Rs 25 lakh per month in 1995-96 to less than Rs 10 lakh per month in 1996-97.

 

With brokerage income on the decline, the revenues are not sufficient to cover the costs. The industry is poised for a shake-out, with many of the smaller firms closing shop, says the partner of a leading Mumbai-based forex broking firm.

The decline in brokerage income is attributed principally to the current lack of volatility of the rupee. When forex rates are volatile, banks rely on brokers for market information and route their transactions through them. Consequently, at least 50 per cent of the deals are routed through the brokers.

However, at present most of the activity in the forex market has been on account of intervention by the Reserve Bank of India (RBI). Obviously, the brokers do not any get any commissions on these deals.

In fact, during September - October 1995 (when there was a lot of volatility in the forex markets), our monthly brokerage income was in excess of Rs 50 lakh, said a broker.

According to one estimate, only 30 of the 80-odd forex brokers presently operating in the country are active on a daily basis. Fifteen of these 30 brokers account for a bulk of the business. In fact, many of the smaller players have survived till now only because of the public sector banks policy of not giving more than five per cent of their business to any particular broker.

The Calcutta-based brokers are solely dependent on the State Bank of India for their business, while the southern forex brokers depend on Indian Overseas Bank and the State Bank of Travancore. With all the foreign banks and many of the public sector banks having now centralised their forex operations in Mumbai, it is feared that only Mumbai-based brokers will survive the impending shakeout.