(iii) Robust Business Model: The primary dealer business is exposed to interest rate cycle and adverse movements would expose their balance sheets to losses. Further, geopolitical and economic risks and consequent volatility in domestic or international financial markets could potentially damage the financials. This risk is amplified for standalone PDs due to small balance sheet size.
It is essential that PDs have strong financials and risk management capabilities. In order to protect PDs from downside risks, Reserve Bank has allowed PDs to diversify their businesses. However, only a couple of PDs have diversified.