PD underwriting commission slumps 65% in FY25; strong G-sec demand keeps earnings under pressure

Bonds

Underwriting commission paid to primary dealers (PDs) plunged 65 percent in FY25 as government securities (G-secs) auctions saw strong participation and minimal devolvement, according to the Reserve Bank of India’s Trend and Progress of Banking in India 2024–25 report.

The underwriting commission (excluding GST) fell to Rs 14.5 crore in FY25 from Rs 43.1 crore in FY24, as the average commission rate dropped sharply to 0.1 paise per Rs 100, compared with 0.3 paise per Rs 100 a year ago.

Explaining the trend, Umesh Kumar Tulsyan, Managing Director, Sovereign Global Markets, said underwriting income depends largely on market demand, volatility and the extent of devolvement.

“FY25 saw healthy demand from PDs with aggressive bidding and almost no devolvement of securities. That directly translated into a more than 60 percent drop in underwriting commission compared with FY24,” Tulsyan told Moneycontrol.

Primary dealers usually underwrite the government bond auctions against a commission. This fee charged by primary dealers, though small, reflects the sentiment of the market.

If there is expectation that the market would demand higher yields for buying government bonds at weekly bond auction, which RBI is unwilling to pay, then the primary dealers would charge higher commission fee on bonds for underwriting.

Despite lower commission payouts, PD participation remained strong, with all dealers meeting the mandated minimum success ratio during the year.

PDs subscribed to 74.8 percent of total treasury bills issued in FY25, while their share in central government dated securities allotments remained significant, the report said.

The RBI, however, flagged early signs of a recovery in commission rates in the current fiscal. In the first half of FY26, the average underwriting commission rose to 0.6 paise per Rs 100, reversing the sharp compression seen last year.

On the balance sheet front, growth in standalone primary dealers (SPDs) moderated in FY25 after a strong expansion in the previous year. The slowdown was driven by weaker growth in current assets, mainly G-secs and other marketable securities, which account for the bulk of SPD assets.

Liability composition also shifted during the year. While growth in secured borrowings slowed, unsecured borrowings gained traction, increasing their share in total outstanding loans.

Looking ahead, market participants expect underwriting commissions to remain range-bound in FY26 despite ongoing volatility in bond markets.

“Demand at auctions continues to be healthy with zero devolvement so far in the current year. Commission rates across maturities are broadly in line with FY25 levels, leaving limited scope for any further decline,” Tulsyan said.

He expects underwriting commissions to average around 0.15 paise per Rs 100 for short-term papers, 0.30–0.40 paise for medium-term bonds, and 0.65–1.00 paise for long-dated securities in FY26.