The stock exchange went from a Rs 820 lakh profit last year to a mere Rs 38 lakh in March 1998. At the governing board meeting last week, President J C Parekh explained that the dip in profits was due to the transfer of a huge Rs 60 crore by the stock exchange to the trade guarantee fund (which was a pre-condition to the expansion of its on-line trading system) and Rs 8 crore to the Central Depository in May 1997. This had led to a Rs seven crore drop in interest earned on the money.

The annual report reveals that this year's Rs 38 lakh is also mere good fortune. The exchange has shown a huge saving of Rs 63 lakh in computer maintenance costs. A part of the saving came about because the BSE signed a `skills only' contract with the Computer Maintenance Corporation for its on-linetrading system instead of the comprehensive agreement which was in order. It also transferred Rs 43 lakhs of unused spare parts to the stock-on-hand account.

Had it not been for this saving, the exchange would have been in the red during the current year itself. Contrast this with the bold investment plans it has lined up in order to set up the Central Depository Services (India) Ltd.

The BSE's general body, at the end of October, approved its proposal to invest upto Rs 85 crore in the Central Depository which is being promoted by the BSE as its counter to the National Share Depository Ltd (NSDL). Leading brokers say that the general body was unaware of the precarious state of its finances when it approved the investment.

The Securities and Exchange Board of India (SEBI) has mandated a Rs 100 crore networth requirement for depositories. If one excludes the Rs eight crore already advanced to the depository, this means that the BSE has to raise Rs 92 crore more for the depository.

So far, Bank of Indiaand Bank of Baroda are understood to have agreed to invest Rs 10 crore each in the depository. This still leaves a gap of Rs 72 crore for the BSE to fill. Though the BSE has approval to invest Rs 85 crore, it is completely unclear where the funds would come from.

The exchange has written to all leading banks and financial institutions to participate in the depository. It has also written to individual brokers asking them to register as participants as yet another way of raising the huge networth required. However, all these requests had been made before the publication of the latest annual report which reveals the precarious state of the BSE's finances.

Concerned brokers have begun to ask whether it is advisable for the BSE to set up a depository at the risk of destroying the financial stability of the parent institution. According to these brokers, the BSE is pressing ahead with the investment only because some members of the governing board had made it a prestige issue so as to be on par with with theNational Stock Exchange (NSE).