Chemicals Pharmaceutical Textiles Preface|Foreword|Executive Summary|Banks|Non Banks|General Insurance|Life Insurance|Mutual Funds|Interview|Company Profiles|Partners|Launch Event|Editorial Team Industry Overview Structure of the Indian Banking Industry Regulatory & Policy Environment Performance of the Banking Industry Soundness Indicators of the Banking Industry Technology in Banking Issues and Challenges Development Finance Institutions Non-Banking Financial Companies Primary Dealers Industry Overview Evolution of the General Insurance Industry Performance of the Industry Industrial Segments Key Regulatory Policies Challenges and Outlook Industry Overview Evolution of the Life Insurance Industry Driving Factors Performance of the Industry Impact of the Global Financial Crisis Key Regulatory Policies Challenges and Outlook Industry Overview Evolution of the Industry Structure of the Mutual Fund Industry Regulatory Framework Current Scenario of the Mutual Fund Industry Issues & Future Outlook State Bank of India ICICI Bank Ltd Canara Bank Punjab National Bank HDFC Ltd Securities Trading Corporation of India Ltd National Bank for Agriculture & Rural Development Power Finance Corporation Ltd ICICI Prudential Asset Management Company Ldt UTI Asset Management Company Ltd Reliance Capital Asset Management Ltd HDFC Asset Management Company Ltd Life Insurance Corporation of India ICICI Prudential Life Insurance Company Ltd Bajaj Allianz Life Insurance Company Ltd SBI Life Insurance Company Ltd General Insurance Corporation of India The New India Assurance Company Ltd United India Insurance Company Ltd National Insurance Company Ltd Launch Event Launch Event - Airtel Partner

The primary dealers (PD) system was introduced by the RBI in 1995 to facilitate government’s market borrowing programme and improve the secondary market trading system by contributing to the price discovery, enhancing liquidity & turnover and encouraging voluntary holding of government securities amongst a wider investor base. Today, the PD system serves as an effective medium for conducting open market operations. A significant portion of the market demand for government securities in the primary market emanates from the PDs.

There were 19 PDs as at end-September 2009 as against 17 PDs as at end-March 2008. Out of these 19 PDs, 11 were banks undertaking PD business departmentally (Bank PDs) while the remaining 8 were stand-alone non-bank entities that were engaged predominantly in the government securities business.

Prior to April 2006, the success of PDs in the primary auctions was ensured through a scheme of underwriting, a system of bidding commitments and success ratios (currently success ratio is 40% of bidding commitment in respect of treasury bill auctions on a half-yearly basis) in the auctions. The PD system was revamped to ensure a more active participation of PDs in view of the provisions of the Fiscal Responsibility and Budget Management (FRBM) Act 2003 that prohibited the RBI from participating in the primary market. The RBI not only permitted banks to undertake PD business but also allowed them to merge their PD subsidiaries departmentally, subject to certain conditions. The RBI also issued revised guidelines for PDs to ensure that there is under-subscription in the auctions. Further, in order to ensure 100% underwriting and to obtain competitive bidding from PDs, a new incentive structure in the underwriting auctions was put in place. The RBI also revised the liquidity support facility to stand alone PDs based on their performance in the primary auctions and the turnover in the secondary market. Further, with a view to broaden the market and to impart momentum to the secondary market activity, a system of satellite dealers (SDs), as a second tier of dealer system in trading and distribution, was introduced in December 1996. However, the SD system was discontinued from May 31, 2002 since it did not yield the desired results.

In last few years, PDs have maintained a dominant share of over 45% in primary auction allotment. Further, PDs are required to achieve a success ratio of 40% of bidding commitment in respect of treasury bill auctions on a half-yearly basis. Although all the PDs achieved the minimum prescribed success ratio of 40% in both the halves of FY09, the success ratio (treasury bills) for FY09 declined substantially to 59.1% from 100.4% during the previous fiscal. The PD’s share in the primary auction of treasury bills, however, increased to 60.5% during FY09 as compared with 51.7% during FY08.

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