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RBI-Sebi panel on banks' capital mkt exposure meets Thursday

BS Banking Bureau

The standing technical committee of Reserve Bank of India (RBI) and Securities and Exchange Board of India (Sebi) on Bank Financing of Equities is meeting Thursday to review commercial banks' exposure in the capital market.

This is the first meeting of the committee since the recent crisis has engulfed the market. The RBI had earlier this month called for the latest data of stock market exposure from all commercial banks.

The standing committee with GP Muniappan, A Ghosh, OP Gehrotra and Pratip Kar as members, in November last year linked banks investments in markets to its total outstanding advance portfolio and capped it at five per cent, provided it is not exceeding 20 per cent of the net worth.

However, the committee has given discretion to bank boards to decide on the quantum of banks' advances against shares (financing of IPOs, advances to individuals, brokers and market makers, issue of guarantees on behalf of brokers and advances to corporates to meet promoters' contribution).

The standing committee is expected to link banks advances to the capital market in various forms to the outstanding advance portfolio and may cap it at 10 per cent, said sources.

Along with the cap in loans against shares, the standing committee may come out with the broker-specific exposure limit to curb the misuse of bank funds.

Although the total exposure of the banking sector to the capital market is low, the exposures of a few new private and foreign banks are over 10 per cent. Centurion Bank's exposure is pegged at around 15 per cent.

The total capital market exposure of the Indian banking system (in terms of advances), is 0.83 per cent of the outstanding credit as on December 31, 2000. In absolute term, the cash advances against shares is around Rs 35 billion with the range of margin varying between 28 per cent and 133 per cent. The bank guarantees offered to the brokers were to the tune of Rs 30 billion on December 31.

At present, the central bank allows the commercial bank to lend up to Rs 1million to an individual against physical shares (margin 50 per cent) and Rs 2 million against demat shares (margin 25 per cent). However, there is no limit on overdraft facilities or line of credit to share brokers against shares and debentures.

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