Bank of Baroda may set up a subsidiary to handle business of Primary Dealer

Bank of Baroda has received in-principle approval from the Reserve Bank of India (RBI) to transfer its existing Primary Dealer (PD) authorisation to a proposed wholly owned subsidiary. The proposed subsidiary will undertake Standalone Primary Dealer business, subject to obtaining other necessary regulatory approvals.

Primary Dealers (PDs) are financial institutions authorised by the Reserve Bank of India (RBI) to act as key intermediaries in the government securities (G-Sec) market. Their main role is to help the government borrow money smoothly and to ensure liquidity and stability in the bond market. In simple words, Primary Dealers are the backbone of India’s government bond market.

What Primary Dealers do

Primary Dealers are required to:

• Participate in auctions of government securities such as Treasury Bills, Government Bonds, and State Development Loans
• Underwrite government bond issues, ensuring that the government can raise funds even if demand is weak
• Buy and sell government securities in the secondary market to provide liquidity
• Make continuous two-way quotes (buy and sell prices) so investors can trade easily

Why RBI appoints Primary Dealers

The RBI appoints PDs to:

• Ensure stable demand for government bonds
• Improve price discovery in the bond market
• Reduce volatility in yields
• Support efficient public debt management

Without PDs, government borrowing would become more expensive and less predictable.

Types of Primary Dealers in India

There are two types:

1. Bank Primary Dealers – Banks that conduct PD activities within the bank
2. Standalone Primary Dealers – Non-bank entities or subsidiaries that only carry out PD business

RBI increasingly prefers standalone PDs to separate trading risks from core banking activities.

Who can be a Primary Dealer

• Scheduled commercial banks
• Standalone PDs approved by RBI
  They must meet strict criteria related to capital, risk management, and market participation.

How Primary Dealers earn money

PDs earn through:

• Trading profits from government securities
• Underwriting fees
• Interest income
• Market-making spreads

Why banks set up PD subsidiaries

Banks create PD subsidiaries to:

• Ring-fence trading risk
• Improve regulatory compliance
• Increase transparency
• Focus exclusively on bond market operations