Primary Dealers (PDs) play a vital role in the Indian financial ecosystem by acting as intermediaries in the government securities (G-sec) market. They underwrite the issuance of G-secs, treasury bills, and cash management bills on behalf of the Government of India. Essentially, PDs are the market-makers for these securities, ensuring liquidity and price discovery in the primary and secondary markets.
Often referred to as “merchant bankers to the government,” PDs are the only entities authorised to underwrite primary issues of dated government securities. Their participation supports the smooth functioning of the debt market and stabilises yields through active bidding in auctions.
The Reserve Bank of India (RBI) introduced the Primary Dealer system in 1995, initially allowing independent entities to engage in PD activities. Over time, the system expanded to include banks, which were allowed to conduct PD operations within their institutions starting from 2006–07.
To ensure wider participation and greater stability in the G-sec market, RBI allowed standalone PDs to diversify into other financial services beyond core PD activities, subject to regulatory oversight and compliance.
According to a recent news report, Shriram Finance, one of India’s largest non-banking financial companies (NBFCs), is seeking a standalone PD licence from the Reserve Bank of India. If approved, this would mark a significant development as Shriram Finance would become one of the few non-bank entities to receive such a licence in recent times.
The company has a substantial investment book and is looking to build capabilities in trading government securities. This aligns with the PD business model, which is typically characterised as a low-margin but zero-risk operation, owing to the sovereign backing of the securities involved.
Last week, Shriram Finance informed stock exchanges that it has received the RBI’s nod to acquire 100% equity in Shriram Overseas Investments (SOIPL) from Shriram Investment Holdings. Following this acquisition, Umesh Revankar and Parag Sharma have been appointed as directors on the board of SOIPL—potentially signalling strategic shifts aligned with the pursuit of the PD licence.
The licence would enable Shriram Finance to:
While the PD business may not promise large profit margins, it offers stability, credibility, and regulatory recognition, making it an attractive proposition for a large NBFC like Shriram Finance.
As of now, India has 7 standalone PDs and 14 bank-affiliated PDs.
RBI has remained selective in issuing PD licences, and the criteria include being registered as an NBFC for at least 1 year before application submission.
The pursuit of a PD licence by Shriram Finance reflects its ambition to expand into the domain of government securities trading and establish itself as a trusted intermediary in the public debt market. With the RBI’s cautious approach to granting PD licences, the outcome will be closely watched across the financial sector.
Disclaimer: This blog has been written exclusively for educational purposes. The securities mentioned are only examples and not recommendations. This does not constitute a personal recommendation/investment advice. It does not aim to influence any individual or entity to make investment decisions. Recipients should conduct their own research and assessments to form an independent opinion about investment decisions.
Investments in the securities market are subject to market risks, read all the related documents carefully before investing.
Published on: Apr 9, 2025, 2:21 PM IST
Team Angel One
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