Satellite dealers for gilts to be shown the door

MUMBAI: Having recognised the failure of the Satellite Dealers to generate retail interest in the secondary market for government securities, the Reserve Bank of India has asked banks to promote schemes for gilts.

RBI has said that after obtaining the views of Primary Dealers Association of India and considering the role of satellite dealers in the present condition, it has decided to discontinue the system of satellite dealership.

“Accordingly, now new satellite dealer will be given licences and existing satellite dealers will be required to make action plans, satisfactory to RBI for termination of their operations as SDs by May 31, ’02.

Even while the satellite dealers were in business, their definition of retail was confined to small corporates, charitable trusts and other institutional entities who did not have direct access to the government securities market.

According to bankers, retailing of gilts has failed to take off largely due to the lack of infrastructure available for retail investors to easily purchase and sell their securities. Moreover, while at the institutional level, the government securities market is highly liquid, it is not easy for a small investor to sell securities in small lots.

Moreover, in the past retail investors had to maintain their holdings in paper form and had to face huge delays in effecting transfers. RBI has said that banks should promote schemes making gilts available to retail investors in dematerialised form through accounts with depositories or with constituent subsidiary general account holders.

“PDs and banks may also provide both sale and purchase facility to ensure that the retail investors are assured of liquidity of such investments,� RBI said.