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Banks snap credit lines to brokers

BS Banking Bureau

Commercial banks across the board have started slashing limits to stock brokers and taking no fresh exposure to brokers, thus virtually choking the money line to the trading community.

The banks have also started blacklisting scrips, which are not acceptable as collaterals.

This may create problem for the markets since it will dry up liquidity. "Banks are neither willing to lend against shares nor offering fresh guarantees to the brokers. It may trigger severe liquidity problem for the markets," said a source.

A senior private bank official said the banks are going 'very selective' in lending loans to brokers. Particularly those brokers who are running huge positions will not get fresh loans. "We are slashing the existing limits and recalling loans.

The question of offering fresh loans does not arise," said another banker. With the closure of the financial year 2001 round the corner, banks are not taking any chances.

"It is completely the call of the bank. The margins are being raised and the banks have also become very selective on collaterals. Only the liquid old economy stocks are being accepted (as collaterals)," pointed out another banker.

The trigger point is the Calcutta Stock Exchange's decision to invoke bank guarantees and the massive meltdown in certain scrips.

The list of brokers whose guarantees were involved by CSE included DK Singhania, Ashok Kumar Poddar, Sanjay Khemani and Harish Biyani.

Banks exposure to brokers in the form of bank guarantees is a part of the non-funded exposure for which they charge a guarantee commission of 1 to 2 per cent. Brokers place a 25 per cent margin with the bank in the form of cash and shares.

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