Pds Plan To Move Rbi Over Nbfc Guidelines

Several of the country's leading primary dealers (PDs) are planning to move the Reserve Bank of India (RBI) to seek an exemption from the non-banking finance company (NBFC) guidelines which stipulate a 15 per cent cap on investment in corporate paper.

This will help the PDs to play a more effective role as market makers as it will help them to enhance their bottomline.

PDs are currently bunched under the same category as NBFCs and like other NBFCs are not allowed to invest more than 15 per cent of its net worth in commercial paper and bonds.

Several primary dealers are planning to get into the commercial paper and bonds market as an additional activity. Hence they feel that if RBI were to remove this ceiling, it would enable the PDs to enhance their earnings. This investment restriction restricts the trading and market making activities of PDs in corporate/ PSU bonds.

 

Sources said they expected easier liquidity support from the Reserve Bank (RBI) after it changes the basis of liquidity support to PDs. Presently RBI support to PDs is at a fixed 8 and 10 per cent interest, pegged to the bank rate. However, the RBI's intention is to provide liquidity to PDs through an auction system at variable interest rates. RBI is also looking at allowing individual banks to bid in the liquidity support process.

In fact a few banks are said to have approached the RBI's department of banking operations to allow them to lend to PDs at sub-prime lending rates.

Top Securities Trading Corporation (STCI) sources said the institution is planning to come out with a commercial paper at an appropriate time and has already obtained P1+ rating from CRISIL and A1+ rating from ICRA. To provide liquidity to its commercial papers, STCI proposes to make a couple of banks as dealers to its commercial paper issue.

Apart from providing an alternate source of raising funds, CPs would also enable STCI to reduce the asset-liability mismatch, sources said.

STCI was promoted by the RBI, public sector banks and domestic financial institutions in 1994 is the country's largest PD. It is also, one of the first two PDs to get RBI approval in February 1996.

STCI, with an authorised share capital of Rs 500 crore, has a net-worth of Rs 606 crore.