| Primary dealers are like merchant bankers and are exclusively set up to manage the government borrowing programme. They guaranty their participation to the RBI for meeting the borrowing programme. |
| In case, market players like banks do not subscribe to the government papers in the primary auction, primary dealers underwrite the issue by subscribing to the entire amount. |
| "There is a need to work out a uniform and standardised mechanism for working out the bidding commitment so as to evenly share the government borrowing burden," said a senior official with a leading primary dealer. |
| Now, the bidding commitment is worked out by linking it to the networth of a primary dealer. Therefore, the assurance on what proportion each primary dealer could pick up in the primary auction is proportional to its networth. |
| However primary dealer sources said, with the reversal of interest rates cycles, such an arbitrary methodology puts uneven pressure on them. |
| "It becomes a real problem to offload the government securities picked up in the primary auction in the secondary market," said a dealer. This is because the preference of banks has shifted from investments to the loan portfolio. |
| For the financial year so far, bank investments in government securities has fallen to 9.1 per cent of the total investments as against 25.2 per cent last year. Correspondingly, bank credit has gone up by 27.2 per cent as against 12.8 per cent. |
| The primary dealers have expressed concern over the rising need for the government to borrow from the market even as the interest rates have gone up. |
| They had earlier evinced interest to diversify into market activities like derivatives and foreign exchange. |
| Although a technical committee has been set up to examine the suggestions, the RBI is yet to take a final view on the matter, said dealers. |
Top Section
Explore Business Standard