Classical defence taken by Reserve Bank of India (RBI) to check rupee's fall against dollar will affect the profit of Security Trading Corporation of India (STCI) as well as other primary dealers in the current fiscal.
A press release by STCI after the annual general meeting of the company yesterday pointed out that the outright turnover in the first five months of the current fiscal in the gilt and the treasury bill market was 36 per cent and 68 per cent of the turnovers registered in the corresponding period of the last fiscal.
D Basu, chairman, STCI, said, "though the financial year started with the pronouncement of lower interest rates, the measures taken by RBI later on did not maintain that."
"There was continuing uncertainty in regard to movement of the yield curve which intensified with RBI taking liquidity tightening measures since early June, 2000, followed by hike in the bank rates and cash reserve ratio (CRR)", Basu said.
STCI said, "If the same position continues during the remaining part of the financial year, the company at best may book a marginal profit."
STCI came out with three specific suggestions to the central bank which could improve the primary dealer's profitability. The suggestions include a temporary measure in the form of a separate window for the primary dealers under which they can get funds through reverse repo auctions at rates very close to the bank rate, opening up of a 'buy window' by the apex bank under which the central bank would purchase the treasury bills at the yields close to the yields at the time of auction and provision of 'switch facility' for more number of long-dated government security.
The securities trading firm is planning to diversify business to get funds at lower rate. R V Joshi, managing director of the company said, "we have felt that we are susceptible to the developments in the forex market and in a crisis situation like this we need to get funds at a less cost. One idea is to diversify our business and get revenues from those other than borrowing from the overnight market."
STCI is the market leader in the primary and secondary markets of government security and treasury bills taken together with 22 per cent share in the primary market and 18 per cent in the secondary market.
The company has recorded a 37 per cent growth in net profit to Rs 113.65 crore in 1999-2000 as against Rs 82.92 crore in 1998-99.
