Date:30/12/2005 URL: http://www.thehindubusinessline.com/2005/12/30/stories/2005123002850600.htm

Back RBI issues draft norms on PD business of banks

Our Bureau

Mumbai , Dec. 29

BANKS that wish to apply for primary dealership are required to have minimum net owned funds of Rs 1,000 crore, a minimum capital adequacy ratio of nine per cent and net NPA level of less than three per cent at the end of the previous financial year, said the Reserve Bank of India.

Banks should have also made profit for the last three years, RBI said in the draft guidelines issued on Thursday.

Under the guidelines, the permitted structure of Primary Dealers (PD) business will be expanded to include banks, provided they fulfill certain minimum criteria and subject to certain safeguards.

Indian banks undertaking PD business through a subsidiary and foreign banks operating in India who wish to undertake PD business would also be eligible if they fulfill the criteria.

The authorisation will be granted by RBI for a year, from July to June, and be reviewed on a yearly basis. It will be based on the performance criteria, such as underwriting in auctions, fulfillment of bidding commitment, success ratio in the primary market and achieving turnover ratio in the secondary market.

The bank-PDs will also be subject to underwriting and all other obligations as applicable to standalone PDs.

Similarly, there would be no separate Capital Adequacy Requirement (CAR) for PD business. The CAR for a bank will also apply to the PD business.

Under the guidelines, Government securities and treasury bills under PD business will count for SLR. The bank will also be required to maintain a minimum size of Rs 100 crore in the separate SGL account for PD business.

As banks have access to the call money market and the Liquidity Adjustment Facility (LAF) of RBI, bank-PDs will not have separate access to these facilities.

The central bank will also conduct on-site inspection of Bank-PD business.