Context:
Shriram Finance, one of India’s largest non-banking financial companies (NBFCs), is seeking a standalone Primary Dealer (PD) licence from the Reserve Bank of India (RBI). If approved, it would mark a rare entry of an asset finance NBFC into the PD space, which has traditionally been dominated by banks and specialized institutions.
Primary Dealers are authorized to underwrite and support auctions of government securities (G-Secs), T-Bills, and Cash Management Bills.
Strategic Expansion by Shriram Finance
- Shriram Finance is looking to build expertise in trading government securities, leveraging its large investment book.
- The company recently acquired 100% equity in Shriram Overseas Investments (SOIPL) and appointed Umesh Revankar and Parag Sharma to SOIPL’s board.
- According to a source, the PD business is low-margin but carries virtually no risk, aligning well with Shriram’s strategy of diversification.
RBI’s PD Licensing Framework
- RBI has been selective in granting new PD licences.
- The PD system was introduced in 1995 and expanded in 2006–07 to include banks.
- Standalone PDs must be registered as NBFCs for at least one year prior to applying.
- PDs act as market-makers and merchant bankers to the Government of India for G-Sec issuances.
Significance
If successful, Shriram Finance would become one of the first asset finance NBFCs in recent years to secure a PD licence, marking a significant shift in its business strategy and a broader evolution in India’s fixed-income market structure.
