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Rukmani Vishwanath

`Our main motive in setting up a PD is to help co-operative banks with their investments in Government securities.'

Mumbai , Nov-21

IT'S a significant diversification for the National Bank for Agriculture and Rural Development (Nabard). The apex-refinancing agency for agriculture is gearing up to become a dealer in Government securities.

The Reserve Bank of India is expected to give Nabard the go-ahead to set up primary dealership (PD) operations shortly, making it the 19th PD in the country.

Nabard officials confirmed that they had applied for a PD licence some time ago and expect the regulator to give them the nod by mid-December.

This venture will be a departure from its traditional role as the apex refinancing agency for the institutions providing investment and production credit for promoting various developmental activities in rural areas.

Nabard's refinance is available to State co-operative agriculture and rural development banks, State co-operative banks, regional rural banks, commercial banks and other financial institutions approved by the RBI.

"Our main motive in setting up a PD is to help co-operative banks with their investments in Government securities. We feel that we could play a useful role here given our relationship with them. In the recent past, a number of co-operative banks have been taken for a ride by market players due to their lack of knowledge and technical expertise in this area," a senior Nabard official told Business Line.

"We can help the co-operatives by sharing with them our research etc. However, profitability will also be one of our goals and to this end we certainly expect to tap other segments of the market as well," he added.

As per the RBI regulation, the minimum capital requirement to start a PD is Rs 50 crore. Market watchers feel that Nabard may capitalise the PD anywhere between Rs 100 crore and Rs 250 crore.

Meanwhile, the bank will approach its board of directors to discuss and formulate the capitalisation and organisational structure. The bank is also expected to begin recruitment for its new venture shortly.

" The idea is to recruit `specialists' in the area from the market. There will also be some deputations from within the organisation, but these would be for other routine responsibilities," according to sources.

Earlier, Nabard is understood to have mooted a plan, whereby it would hold 50 per cent of the stake in the PD, with the remaining 50 per cent to be held jointly by co-operative banks.

However, the latest development seems to be that it will float the PD as a 100 per cent wholly-owned subsidiary.

When queried about whether it is an opportune time for a PD to set up business in the prevailing market conditions, a senior debt market analyst with a leading PD in the country, said, "Nabard will have a captive business with all co-operative banks which will buy securities from them".

He added, "Besdies, interest rates are soft, and it appears that although there are uncertainties on the global front, there is no immediate threat of interest rates hardening locally. Perhaps this is the right time for a new entrant to make its foray."

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