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March 19, 2001
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Money > Business Headlines > Report March 19, 2001 |
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Banks up in arms as CSE invokes guarantees
BS Banking Bureau Banks are up in arms against the Calcutta Stock Exchange's (CSE) move to force them to pay guarantees which are being invoked without the brokers concerned being declared defaulters following last week's pay-in problems. According to highly placed sources, the Reserve Bank of India (RBI), after being persuaded by the capital market watchdog, Securities and Exchange Board of India (Sebi), has asked the banks to pay up even if they are against it. A senior official of the central bank is currently camping in Calcutta to monitor the situation. The CSE has so far invoked guarantees to recover Rs 1.20 billion, and the figure may well cross Rs 1.75 billion. With the close of financial year 2000-01 less than a fortnight away, the banks will be badly hit and some of the brokers may find themselves bankrupt and in no position to clear their dues. Among the banks which have given guarantees to CSE are HDFC Bank, IndusInd Bank, ICICI Bank, Global Trust Bank, Centurion Bank and Canara Bank. In an unusual move, the CSE has started clubbing together two settlements and invoking bank guarantees even for the current cycle (which is not yet completed) in cases where the brokers are too 'stressed' and there is an apprehension of default. The CSE settlement days are Thursday (for pay-in) and Friday (for pay-out) for the cycle which runs between Monday and Friday during the previous week. In effect, the exchange is invoking guarantees (against possible default) a week in advance to create a buffer against a payment crisis. While the brokers are resisting tooth and nail the clubbing of two settlements, the banks too are opposing the move since it involves guarantees being invoked without the broker being declared a defaulter. The next few days at CSE will be crucial and the crisis may spill over to the Bombay Stock Exchange, pulling down the entire system into a payment crisis. Since banks normally charge a 25 per cent margin (inclusive of cash margin) for bank guarantees to stock brokers, the involved banks will be badly hit ahead of the closure of the fiscal 2001.
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