The Hindu Business Line : Govt paper on PD books to be parent bank's SLRs

Government paper held on the books of primary dealers can now be counted as SLR (statutory liquidity ratio) of the banks with whom they have merged, going by a RBI circular.

SLR is the amount a bank has to maintain in the form of cash, gold or approved securities as a proportion of its daily total deposits. The RBI recently permitted the merger of primary dealers with their sponsor banks and bank officials said the RBI circular would aid the process.

"Those banks which have undertaken PD business will have an advantage as this will reduce the pressure on banks to maintain their SLR portfolio," said a primary dealer.

RBI notification

The RBI notification said the investment portfolio guidelines applicable to banks with respect to "held for trading" portfolio would also apply to PDs.

The circular clarifies that investments in bonds of corporates, PSUs and financial institutions, commercial papers, certificate of deposits, debt mutual funds and other fixed income securities will no longer be a part of the bank's PD business.

A bank official said for stand-alone PDs, these investments are part of `non-core activities'. Such investments are a part of banks' treasuries, he added.

According to RBI, the bank's PD business has to be restricted to dealing, underwriting and market making in G-Secs and T-Bills.

Other directiives

Banks with PD business will have to keep separate books of accounts. A minimum balance of Rs 100 crore of G-secs should also be set aside for this business, the RBI has said.

Banks have also been asked to put in place risk management systems

The bank-PDs are expected to join the Primary Dealers Association of India and Fixed Income Money Market and Derivatives Aassociation.

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