Introduction to Primary Dealers

Jul 24, 2024

Primary Dealers: An Introduction

Definition

  • Primary Dealers (PD) are institutions registered with the Reserve Bank of India (RBI).
  • Their main function is to buy and sell government securities.

Roles and Importance

  • Primary Dealers are licensed to buy government securities directly from the RBI.
  • They can resell these securities to other institutions.
  • Their role is to help the government raise funds.
  • The presence of Primary Dealers makes the market organized and flexible.

Government Security

  • Government security determines how the government will raise short-term or long-term funds.
  • Short-term security is called treasury bills, while long-term security is called government bonds.

Characteristics of Primary Dealers

  • Primarily, these institutions are subsidiaries of commercial banks.
  • Any subsidiary of All India Financial Institutions can also be a primary dealer.
  • Foreign institutions with a joint venture or subsidiary in India can also attain the status of a primary dealer.

Registration Process

  • To become a primary dealer, an institution must first be registered as a non-banking financial company (NBFC) one year prior.

Major Primary Dealers in India

  • Commercial Bank Primary Dealers:
    • Bank of Baroda
    • Bank of America
    • Canara Bank
    • HDFC Bank
    • Union Bank of India
  • Standalone Primary Dealers:
    • Morgan Stanley India Private Limited
    • PNB Gilts

Conclusion

  • Primary Dealers play a crucial role in the buying and selling of government securities.
  • Without their assistance, the market for government securities would not be able to operate effectively.

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