With just one out of the seven auctions for gilts held between September and November having gone through successfully, primary dealers (PDs) have upped their commission charges.
Commissions charged by PDs to underwrite bond issues have jumped more than five times to 5 paisa per R100 during the second half of 2011-12 from under 1 paisa in the first half.
The Reserve Bank of India (RBI) pays PDs a fee to pick up any unsold portion of an auction. Since October, bonds worth R91,000 crore have been auctioned and PDs have had to pick up R8,705 crore worth of gilts, which went unsold. However, PDs who have held on to their purchases, would have booked gains since the markets have rallied. From a recent high of 8.97% on November 14, the yield on the benchmark bond had dropped 27 basis points to 8.70% on Thursday, though they had risen sharply before that. Also, between April and September this year, when bonds worth R2.15 lakh crore were auctioned, very small quantities devolved on PDs. Nonetheless, some PDs have been compelled to book losses since they don?t have holding power and need to offload the paper in a week.
Said Prasanna Patankar, senior vice-president at STCI Primary Dealer: ?There is some amount of fatigue, given the high supply of paper coming into the market and, so, the risk involved in underwriting have risen.? Banks, collectively, are understood to be holding excess gilts to the extent of 2-3%; against the madated 24%, banks are actually maintaining a statutory liquidity ratio (SLR) of 26-27%.