MUMBAI, February 8: The country's largest mutual fund, the Unit Trust of India (UTI), and the largest custodian, the Stock Holding Corporation of India Ltd (SHCIL) have decided to forge an alliance to get into stock-lending.As per the agreement, UTI will actively get into the business of stock lending by using SHCIL as its intermediary. In other words, SHCIL will not be a lender but a "directed lender" on behalf of UTI.
In return for services rendered by it, SHCIL will get a certain small percentage out of the interest charged by UTI, as its commission. SHCIL is also in talks with the Life Insurance Corporation (LIC) for a similar such venture.
SHCIL which has already obtained approval from the Securities & Exchange Board of India to act as an intermediary in the stock lending process has put up a draft of its agreement with UTI to the regulator for its consent.
"We will not be a direct lender. Instead we feel we would be better off playing the role of a directed lender. In other words, we wouldrestrict ourselves to providing the infrastructure and system back up on behalf of prospective lenders. UTI will say that we would be the approved intermediary for routing the stock lending transactions. In this direction we have worked out an alliance with UTI which would be finalised very soon", said a top SHCIL source.
"A simiar such alliance is being contemplated with LIC as well. We have Rs 84,000 crore worth of shares in our custody. A bulk of this is accounted for by UTI and LIC. Even if we get a small commission of the interest charged by them for lending shares we could generate a lot of revenue. As for them, they would save the trouble of investing in infrastructure and system for carrying out this business", said the source.
Even though the exact lending rates and SHCIL's commission component has not yet been finalised, there is a possibility that the two sides would decide to charge a lesser fee for lending in the demat mode to take care of the risks involved with paper-based trading.
"Wewould not be able to keep the physical segment out of the stock lending business but the focus would be on promoting the concept in the demat mode", said a source.
Copyright © 1998 Indian Express Newspapers (Bombay) Ltd.
