Citibank has decided to conduct its primary dealer business with the bank and not keep it as part of its loss-making subsidiary, Citicorp Capital Markets Ltd.
The Reserve Bank of India, as part of its policy to allow banks to undertake primary dealer business, had earlier this year allowed banks to merge their arm dedicated to PD business with self.
The RBI allows banks having a minimum net owned funds of Rs 1,000 crore (Rs 10 billion), minimum capital to risk-weighted assets ratio of 9 per cent, net non-performing assets of less than 3 per cent and a profit making record for the last three years to undertake PD business.
Several other banks having PD business as part of their subsidiaries are also expected to merge the business with themselves, as volatile interest rates have turned most such subsidiaries to incur losses.
The primary dealer system has been set up to strengthen infrastructure in the government securities market in order to make it vibrant, liquid and broad-based and to ensure development of underwriting and market making capabilities.
The apex bank said that Citibank has been authorised to under PD business with effect from today and simultaneously withdrew the authorisation given to Citicorp Capital Markets.
Citicorp, incorporated in 2002, is a wholly owned subsidiary of Citicorp Finance India Ltd and is ultimately owned by US-based Citigroup Inc.
The company had a net worth of Rs 120 crore (Rs 1 .2 billion) as on March 31, 2006, same as a year earlier, and reported a post-tax loss of Rs 19 lakh (Rs 1.9 million) in 2005-06 against a net profit of Rs 3.31 crore (Rs 33.1 million) a year earlier. The company had total assets of Rs 242 crore (Rs 2.42 billion) as on March 31, 2006, up from Rs 287 crore (Rs 2.87 billion) a year earlier.
Rating agency Crisil said it has affirmed the ratings on the short-term debt programme of Citicorp Capital Markets in the wake of its exit from the primary dealership business.
Following the surrender of its PD licence, CCML will however, continue to carry on the debt distribution and underwriting business along with corporate debt trading. Going forward, Citicorp Capital Markets also plans to focus on loan syndication.