The Hindu Business Line : PDs seek new avenues to augment income

Primary dealers (PDs) in debt securities are beginning to see that axiom with new interest now. They are looking at newer options for diversification.

Their existing business of dealing in government paper and related securities seems headed for difficult times. Their income from underwriting government issue of paper has been dwindling as commissions paid have come down to about 0.03 per cent now from one per cent in 1996.

Besides, the reversal in interest rate scenario with yields hardening and bond prices falling has forced many of them to sit on losses. The nature of the business does not permit a buy and hold strategy.

Dealers need to keep churning their books and generate trading income. This has proved difficult with a highly competitive environment.

Some of them are now into a huddle to discuss a repositioning of business strategies. Most of them admit the current scenario looks grim and definitely threatens to impinge on their profitability if it continues indefinitely.

Mr R.V. Joshi, Managing Director, Securities Trading Corporation of India Ltd (STCI), a leading primary dealer, told Business Line earlier this month that STCI would soon enter portfolio management and equity trading business to augment its income stream.

Mr Jayesh Mehta, Executive Vice-President, DSP Merill Lynch, said: "Primary dealers must diversify; it is imperative to enter into areas like futures and forex derivatives. This is necessary in order to support the borrowing programme of the Government and to manage the risks. We need to hedge against risk as these days the domestic interest rates are getting aligned to global movement. RBI should allow the primary dealers making market for G-Sec to trade in interest rates and have access to a whole range of interest rate products."

Among the options being considered by some PDs is getting into commodity futures.

Confirmation of the interest expressed by PDs is also available from commodity exchanges.

Mr P.H. Ravikumar, Managing Director, National Commodity and Derivatives Exchange (NCDEX) said, "NCDEX is under discussion on several issues related to membership with primary dealers, mutual funds and banks". An official of Multi-Commodity Exchange (MCX) also confirmed that such institutions were approaching for membership.

Some PDs confirm that they are having discussions with the RBI. Says, the Head of a PD: "These are still at a conceptual stage for entering into commodity trading - primarily bullion trading, also trading into forex market."

More Stories on : Financial Services | Debt Market

Article E-Mail :: Comment :: Syndication :: Printer Friendly Page

Stories in this Section
PDs seek new avenues to augment income

Nabard assures support — RRBs agree to hike farm credit

South Indian Bank opens loan counselling centre at Kottayam

Bonds under pressure on forex outflows, inflation

Andhra Bank hopes to recoup Rs 150-cr NPAs in H1

Canara Bank managers' meet in Hubli

Banks trim NPAs despite stiff norms

For inflation-adjusted FDs