Financial Firms 167
TABLE 10.1 ICICI—A Large Complex Financial Institution
Firm Area Business
ICICI Bank Banking Personal banking; corporate banking
ICICI Prudential Life insurance Insurance for individuals
ICICI Lombard General insurance Insurance
ICICI Venture Venture capital and private
ICICI Securities Investment banking and
Corporate finance, fixed income trad-
ing, equities trading, equity brokerage
for retail and institutional
Prudential ICICI Asset management Mutual funds, portfolio management
This silo approach has adverse effects on cost. In the United States, a pri-
mary dealership is an attribute of a large financial firm. In India, a primary
dealer is a free-standing firm which does only the business of a primary
dealer. The effort of the government has been to reorganize the financial sector
into pieces which fit conveniently into the structure of government agencies.
Financial firms have sought to grow into large complex financial institutions
(LCFIs) despite this silo architecture. The two biggest financial firms—HDFC
and ICICI—are de facto LCFIs (see Table 10.1). This is achieved through a
network of subsidiaries which inhabit each of the silos. The largest and most
sophisticated firms follow in the footsteps of these pioneers, and grow out of
the silo mindset into complex multi-product firms.
The classification scheme and organization of this chapter represents a ten-
sion between the silo structure—with watertight compartments between classes
of firms—and an evolution toward complex multi-product firms. The truth lies
somewhere in between the two polar cases with a steady evolution away from
the silo structure.
The critical infrastructure of the financial system involves exchanges and
the payments system. It also involves a maze of acronyms, summarized in
Table 10.2. (See also an extensive list of acronyms in Appendix B.)
There are three groups of exchanges:
SEBI regulates NSE and BSE, which primarily trade equities and equity
168 India’s Financial Markets
TABLE 10.2 Acronyms in Exchange Infrastructure
BSE Bombay Stock Exchange
CCIL Clearing Corporation of India Ltd.
CDSL Central Depository Services Ltd.
FMC Forward Markets Commission
MCX Multi Commodity Exchange
NCDEX National Commodity Derivatives Exchange
NDS Negotiated Dealing System
NSCCL National Securities Clearing Corporation Ltd.
NSDL National Securities Depository Ltd.
NSE National Stock Exchange
RBI Reser ve Bank of India, the central bank
SEBI Securities and Exchanges Board of India
SGL Subsidiary General Ledger
RBI regulates CCIL which trades some interest rate and currency prod-
ucts. RBI owns and operates NDS, which is a trading system for govern-
ment bonds.
FMC regulates NCDEX, MCX, and other commodity futures exchanges.
As is typical of the silo structure of Indian finance, these three groups are held
apart by government. They are unable to compete with each other. It is essen-
tially impossible to start a new exchange in RBI’s space. FMC has an ambivalent
approach to competition; in practice it is difficult to start a new exchange. SEBI
has the most open approach on entry into the exchange business.
Surrounding the exchanges are the infrastructure of clearing corporations
and depositories. NSE does clearing through its subsidiary, NSCCL. CCIL is
itself a clearing corporation and does clearing for OTC transactions on the
fixed-income and currency markets, and for the transactions that takes place
on its exchange platform. BSE, NCDEX and MCX do their own clearing.
In terms of depositories, NSDL and CDSL are two depositories dealing
primarily with equity holdings. They also have dematerialized holdings of gov-
ernment bonds, corporate bonds and mutual fund paper. SGL is a depository
for government bonds and is owned by RBI. While NSDL and CDSL compete
with each other, they are prohibited from competing with SGL.
In the exchange industry—comparing exchanges, clearing corporations
and depositories—India has evolved a unique silo structure, where there are
three parallel industries. The industrial organization of the industry has been
reshaped to suit the convenience of the regulatory structure. There is compe-
tition within the silo in two cases (SEBI’s silo and FMC’s silo), but there are
no competitive forces running across silos. Weak firms in all the silos lobby to
uphold the silo structure when they are fearful of competitive pressure from
firms from other silos.

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