NBFCs will need 150-cr net-owned funds for PD entry

MUMBAI: The Reserve Bank of India has said non-banking finance companies (NBFCs), who intend to get into primary dealership business, should have minimum net-owned funds, or NOF, of Rs 150 crore. Banks who intend to expand to primary dealership business should have a minimum net worth of Rs 1,000 crore. Primary dealers, or PDs, are specialised traders in government bonds who have the market making mandate for government bonds and offer two-way quotes on bond trading.

The revised guidelines, put up on RBI's website, have also said, in case a primary dealer intends to diversify into other permissible activities, such as brokerage and merchant banking , the minimum NOF shall be . 250 crore. The guidelines stipulate that banks should also have ratio of capital to risk-weighted assets, or CRAR, of 9% and net nonperforming assets or net of less than 3%, in addition to a profitmaking record for the last three years.

The objective of the proposed review of existing guidelines, according to the central bank, is to make the policy more transparent and ensure that the new primary dealers have sound capital, adequate experience and expertise in the government securities market. The guidelines propose that subsidiaries of commercial banks with no track record in government securities or financial institutions and companies registered under the Companies Act, 1956, can also be allowed to become primary dealers, but they may need to have experience in the business before applying for primary dealership.

The proposed guidelines cite examples of the selection criteria for primary dealers in other countries and emphasise the importance of sound financials and the ability to add value to the government securities market and participate actively in the government borrowing programme, for any entity to be allowed a licence for the business.

Source: EconomicTimes