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Poornima Mohandas

MUMBAI, March 26

THE Reserve Bank of India scheme for gilts trading on the bourses seems to be facing a `chicken and egg' situation

Excepting a few, most primary dealers are yet to even seek consent from their boards to participate in the new initiative. Seeing the new retail debt market as a `loss-making proposition', most PDs have put the issue on the backburner. Traders have more topical things such as year-end results and the war in West Asia on their minds, concede debt market participants.

Primary dealers, traders and market makers in the wholesale debt market were asked by the Reserve Bank of India in mid-January to supply stock on the exchanges and provide two-way prices for the buying and selling of g-secs.

From the investor side, even Provident Funds are not finding this model attractive since their average quantum is often larger that the stock availability on the exchanges. Also there is an inertia to change from the constituent subsidiary general ledger (CSGL) account route they are accustomed to.

"We usually buy in quantum of Rs 5-15 crore, which is not available through the exchanges, therefore we do not opt for it,'' said a PF fund manager. Through the existing route, individuals/institutions can purchase g-secs by maintaining a CSGL account with a bank or a PD.

The IT infrastructure and internal control systems of most PDs were yet to fall into place. "Hopefully we will have it in place in the next few months," said a senior official in a PD.

The higher brokerage charge even for these low-value transactions acts as a deterrent for PDs.

"For every Rs 100 transaction, we will have to pay 0.2 per cent to the broker, while brokerage in the wholesale debt market is a mere 0.05 per cent,'' said a Vice-President in a PD.

Most PDs would love to be out of the retail game, except for the RBI's notification.

Says a chief dealer in a PD who has already written off the new system: "Spending the same amount of time and effort, we can rake in higher profits by doing high-value transaction of Rs 5 crore and above in the wholesale market.''

Dismal volumes are being traded daily on both the NSE and BSE averaging a few lakh, after registering as much as close to Rs 2 crore turnover on January 16, the day the Finance Minister inaugurated the new scheme.

It is believed that incentives for both investors and PDs could stimulate this market.

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