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The Reserve Bank of India is believed to be considering a proposal to allow exclusivity to the primary dealers in treasury bill auctions.
According to banking sources, the ensuing credit policy may chalk out a roadmap in this direction along with guidelines to allow PDs to diversify their business beyond government securities.
This follows a representation from the PDs, who retail government securities after picking up the stock from primary auction.
However, in a tight market situation where yields are rising and bond prices are falling, it has become very difficult for the PDs to offload government securities in the secondary market after they bid in the primary auction of the RBI.
Moreover, restricting the business to only government securities is resulting in losses as there are no avenues to hedge the business risk, said a primary dealer. Therefore, primary dealers have proposed to the RBI for permission to deal in equity, commodity futures and derivatives.
As far as diversification of market instruments is concerned, the central bank is considering a proposal to increase the limit of interbank participation certificates.
The IPCs facilitate sharing of single or group exposure of credit among the banks for a period of 91-180 days and they can account for 40 per cent of the total portfolio. The proposal is to raise the limit and expand the time limit from as low as 15 days to as long as one year to ensure adequate liquidity in the loan market.
Moreover, when the credit portfolio of every bank is growing, this mechanism will help banks shed some exposure for a certain period.
On the other hand, those who could not meet the target of directed lending could increase their exposure.
A roadmap for implementation of separate trading of registered interest and principal securities along with development of corporate debt is also expected.
Market players are of the view that there should be distinct market makers for the corporate debt on the line of government securities.