Stci Not To Buy Zc On Behalf Of Banks

This has led to the feeling that the zero coupon will definitely devolve as sharing of commission between banks and PDs is one of the main reasons for the banks to participate in the primary auction of the paper.

STCI's lack of enthusiasm for bidding on behalf of banks follows the recent informal decision taken by PDs to stop bidding on behalf of banks. STCI sources said the decision comes in the wake of several nationalised banks complaining to the Reserve Bank of India (RBI) that they are not able to get securities at competitive prices, due to the commission system that is available only to primary dealers.

 

STCI had already decided to stop bidding on behalf of banks for treasury bills.

One of the key factors that has prompted this latest move is the commission sharing problem. Banks have been demanding more and more commission from the PDs.

Some primary dealers which are subsidiaries of nationalised banks have been doling out as much as 50 paise out of the Re 1 commission paid by the RBI on dated securities. The others have been finding it difficult to meet this high commission.

Sources say STCI will not be entering into pre-determined deals with banks before the forthcoming zero coupon sale on October 7.

It will pick up stock only on its own behalf at the primary market sale and banks will have to take a chance on picking up the stock at a later date in the secondary market.

The present zero coupon bond 2000 (III) series is available in the secondary market at a much lower rate than the price offered by the RBI. The Reserve Bank is offering a new tranche of the security at a price of Rs 60.66 while the current paper is available at Rs 60.17 Banks are finding it more profitable to pick up the zero coupon in the secondary market rather than participate in the primary auction.

This is because the paper is available at a discount in the secondary market, after the primary market sale.