What changed
RBI expanded PD business structure to include banks meeting eligibility criteria, finalizing draft guidelines after stakeholder feedback. Banks can now apply for PD licence either directly or by merging existing PD subsidiaries, with authorization valid for one year (July-June) and subject to annual review based on performance.
What it means for you
Banks can now directly participate as Primary Dealers in government securities, enhancing their market role and revenue streams. They must maintain separate SGL accounts with minimum ₹100 crore, follow PD obligations, and adhere to bank-level prudential norms without separate capital adequacy. RBI will supervise through on-site inspections and require regular returns.
What you must do
- Assess eligibility: ensure NOF ≥ ₹1,000 crore, CRAR ≥ 9%, net NPAs < 3%, and three consecutive years of profit.
- Prepare application for RBI's Department of Banking Operations & Development if eligible.
- Set up separate SGL account for PD business with minimum ₹100 crore balance.
- Develop MIS to segregate PD business from other banking operations.
- Comply with all PD-specific obligations, including underwriting and bidding commitments.
Who it affects
Scheduled commercial banks (excluding RRBs) with strong capital and asset quality, Banks with existing PD subsidiaries considering merger, Foreign banks operating in India with group PD business
What are the key eligibility criteria for a bank to become a Primary Dealer?
Banks must have minimum net owned funds of ₹1,000 crore, CRAR of 9%, net NPAs below 3%, and a profit-making record for the last three years. Foreign banks can apply by merging PD business from group companies.
How long is the PD authorization valid, and what are the renewal conditions?
Authorization is for one year (July-June), reviewed annually based on performance criteria like underwriting in primary auctions, bidding commitment, success ratio, and secondary market turnover.
What prudential norms apply to Bank-PDs?
No separate capital adequacy is required; bank-level CRAR applies. Government securities under PD business count for SLR. Valuation follows 'Held for Trading' portfolio rules. Separate SGL accounts must be maintained with minimum ₹100 crore.