RBI caution on hedge funds
Mumbai: Hedge funds which engage the services of a single brokerage, could pose greater risk to financial sector stability, said RBI Governor, Dr Y.V. Reddy. He said a prime broker acts as a settlement agent, provides custody of assets and also offers leveraged finance for hedge funds. Hedge funds, operating outside know-your-investor norms, have long used arrangements that allow them to execute trades with several dealers. But now there is an increasing tendency on their part to consolidate the clearing and settlement of their trades through a single firm — the `prime broker'.

"Prime brokerage poses unique challenge for the management and counterparty credit and operational risk. Recent events have reinforced the possible adverse impact of their risk," said Dr Reddy.

Normally, in stock trading, counterparty risk is borne by clearing houses. But the liability in the event of a default by a seller or a buyer could be huge when hedge funds deal through a single broker who also provides leverage finance.

The RBI Governor's observation assumes significance, as hedge funds operating through Participatory Notes (PN) account for nearly 50 per cent of the FII investments in Indian market. The RBI is suspicious of the use of PNs, seen as a tool used for money laundering. To get over this Sebi has toying with the idea of allowing hedge funds to trade in the Indian markets directly. Once registered with SEBI, hedge funds would be operating like foreign institutional investors and counterparty risk could be lowered.
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SBI, Nabard to establish `farmers` club` in UP
New Delhi: The State Bank of India and Nabard have joined hands to establish a "Farmers' Club" in Uttar Pradesh. The club aims at enhancing the bargaining power of the farmers and artisans besides reaching out to the rural masses.

According to SBI officials the bank proposes to use these farmers' clubs for extending banking facilities and for financial inclusion of entire population of the identified villages across the state. 501 such clubs were inaugurated on Saturday.

Through these Clubs the banks are also offering training to progressive farmers for improving farm productivity.

SBI further plans to open a farmers' club in every village of Uttar Pradesh in coming few months.
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Rabo Bank to buy 49 pc stake in CanBank MF
New Delhi: The Netherlands-based Robeco Groep NV, part of Rabobank Groep, will acquire 49 per cent stake in Canara Bank's asset management arm Canbank Investment Management Services for Rs115 crore.

The proposed venture has received the nod of the Reserve Bank of India, approval from the capital market regulator SEBI and the Foreign Investment Promotion Board would be sought soon, sources said.

The new company called `Canara Robeco' would aim to position CIMS as a dominant player with an aim to capture five per cent market share in the next five years. The joint venture would float five new equity-based products in the coming months.

Rabo India Finance would be the advisors to Canara Bank for this strategic alliance.

The European company's entry follows other multinational players such as ABN Amro, ING Group, HSBC, Franklin Templeton, Prudential, Standard Chartered and Fidelity.
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