Financial Daily from THE HINDU group of publications
Sunday, May 05, 2002
Financial Daily from THE HINDU group of publications Sunday, May 05, 2002 |
|
|
|
|
|
Home Page
-
RBI & Other Central Banks Money & Banking - Co-operatives New norms for urban co-op banks on gilts dealings Our Bureau
MUMBAI, May 4 THE Reserve Bank of India has issued new instructions to urban co-operative banks on their dealings in Government securities. In a recent circular issued to the chief executives of urban co-operative banks (UCBs), RBI has told the banks not to undertake any purchase or sale transactions with broking firms or other intermediaries on a principal-to-principal basis. Over 17 co-operative banks are said to be involved in the latest gilts scam, losing around Rs 400 crore on account of deals placed directly with brokerage firms in Government paper. SEBI had suspended the Home Trade, the brokerage firm, over transactions that RBI had termed were "fraudulent'' in nature. The RBI circular states that a recent scrutiny of investment transactions of some of UCBs has shown that some banks had not observed guidelines issued by the central bank and had undertaken transactions which might have exposed banks to significant risks. RBI said all UCBs should seek a scheduled commercial bank, a primary dealer or a financial institution as a counter-party for their transactions. "Preference should be for direct deals with counter parties. It will be desirable to check prices from the banks or PDs with whom UCBs may be maintaining constituent SGL account (CSGL),'' the RBI circular said. Only brokers registered with NSE or BSE or OTCEI should be utilised for acting as intermediary. A disproportionate part of the business should not be transacted with or through one or few brokers, the circular states. It adds that banks should have a list of approved brokers and a limit of five per cent of total transactions (both purchase and sales) entered into by a bank during a year should be treated as the aggregate upper contract limit for each of the approved brokers,'' it states. In case a deal is put through with the help of a broker, the role of the broker should be restricted to that of bringing the two parties together. ''Under no circumstance should banks giver power of attorney or any other such authority to brokers or intermediaries to deal on behalf in the money and securities markets,'' the circular said. UCBs have been told to take advantage of non-competitive bidding facility provided to them for acquiring Government of India securities in the primary auctions of the Reserve Bank of India. Further, RBI has said that brokers should not be used in the settlement process at all, viz both fund settlement and delivery of security should be done with counter-parties directly. For all transactions, delivery versus payment must be insisted upon by UCBs. Dealing and back-up functions should be properly segregated and officials deciding about purchase and sale transactions should be separate from those responsible for settlement and accounting. The central bank has said that all investment transactions should be pursued by the board at least once a month.
Send this article to Friends by E-Mail
|
Stories in this Section |
|
The Hindu Group: Home | About Us | Copyright | Archives | Contacts | Subscription Group Sites: The Hindu | Business Line | The Sportstar | Frontline | Home |
Copyright © 2002, The
Hindu Business Line. Republication or redissemination of the contents of
this screen are expressly prohibited without the written consent of
The Hindu Business Line
|