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RBI looking into pvt banks' stock market exposure

BS Banking Bureau

The Reserve Bank of India (RBI) is probing the exposure of a few private sector banks in the stock markets.

The central bank would look into the "huge" build-up of credit exposure to a select circle of brokers and other market intermediaries, top RBI sources said.

The probe would also seek to ascertain if the banks have been "prudent" in the collection of collateral and its valuation.

The probe into the books of Global Trust Bank, one of the banks under examination, could derail the process of its merger with UTI Bank, sources said.

A small group of private banks, sources said, had accumulated large exposures to a clique of brokers. But as the value of the initial collateral fell in line with the softening in ICE stocks, the banks insisted on fresh collateral, which was again furnished in the form of ICE scrips.

But a recent sharp fall in the value of these scrips forced the banks to call in their loans. One bank is said to have sold off the collateral in the open market when the concerned broker was unable to regularise the account.

According to preliminary information, at least one foreign bank was brought into the picture for bridge financing for the amount in shortfall, but the bank too chickened out after a sudden fall in the key scrips offered as collateral.

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