Re-drafted bank investment norms not to lift markets

NetScribes/Salil Panchal

The Reserve Bank of India's move to give banks more leeway to operate effectively in the stock markets is not going to lift market sentiment amidst the current gloom. The move, based on the re-drafted guidelines of the Standing Technical Committee on Bank Financing of Equities, will have little impact on the stock markets.

The committee has stated that financing of initial public offerings (IPO) would be treated as advance against shares to individuals, and banks would be allowed to grant advances for subscribing to IPOs only to individuals. The maximum amount of finance extended in this case - Rs 100,000 - is a sharp mark-down from the earlier limit of Rs 200,000.

The markets are of the view that this is being specifically done in view of the unsatisfactory performance of recent IPOs. Among the recent retail IPOs, the Hughes Tele.com fixed portion offering fared indifferently, with 75 per cent of the issue being underwritten.

"The cap on finance towards an individual against IPOs, at Rs 100,000, is a move to cool the markets. The performance of the recent IPOs has obviously not boosted sentiments for market intermediaries and the banking system," said Pashupati Advani of Advani Stock Brokers, a BSE retail brokerage.

The market is also not enthused by the fact that the minimum margin obtained by banks on issue of guarantee on behalf of stock brokers has been increased to 25 per cent from the existing rate of around 20 per cent.

"There will be a further squeeze on the broking community, depending on the volume of shares traded,'' a senior dealer at SVS Securities, a BSE institutional brokerage outfit, said.

Sources at HDFC Bank were of the view that despite widening of the definition of the 'total exposure' a bank could take at the capital markets, the markets are unlikely to be substantially affected, given the current sentiment and volatility.

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