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Tuesday, May 18, 2004

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RBI offers liquidity support

Our Bureau

Mumbai , May 17

IN a bid to allay the fears of a payment crisis at the stock exchanges, the Reserve Bank of India (RBI) today announced that it would provide liquidity facilities to any of the settlement banks.

When contacted, none of the settlement banks indicated a crunch of funds since traded volumes today were low; it is rather the brokers who need support.

Following a high-level meeting at the RBI, a task force has been constituted under Ms Shyamala Gopinath, Executive Director, Financial Market Committee, to monitor the capital and financial markets and also to provide any assistance in meeting payment obligations.

The RBI has also kept open a window for banks to buy dollars directly from it to facilitate an easy exit route for FIIs from the capital markets.

Bankers said that the Central bank's statement was made more as a note of reassurance and in an attempt to cool the market sentiment.

None of the eight clearing and settlement banks - Canara Bank, Bank of India, HDFC Bank, ICICI Bank, IDBI Bank, UTI Bank, IndusInd Bank and Standard Chartered Bank - are expected to avail of the liquidity facility offered by the RBI.

An HDFC Bank official said, "No extra liquidity is required. Ample funds are available for clearing and settlement needs. There is no crunch today as only thin volumes were traded.''

On the other hand, brokers are said to be facing a cash crunch and are frantically calling bankers for funding purposes.

While some banks say that they have no headroom to take on more capital market exposure within the five per cent cap, other financiers say that the brokers do not seem eligible since they have no valuable securities to pledge in the event of a falling market.

"Those brokers who are unsuccessful in getting fresh loans will just have to stop trading until their dues are cleared and their margins are topped up. Some brokers may even go bust although no names are being heard at the moment,'' said a private sector banker.

Some banks may extend loans to brokers at higher rates of interest, making the best out of the business opportunity.

The broker financing market - mostly in the form of loans against shares and bank guarantees - is said to run into over Rs 10,000 crore.

"Today's announcement was just for record's sake. Brokers should be given help to meet the crunch situation. This can be facilitated if the RBI raises the five per cent cap on bank's lending to capital markets,'' said a senior banker.

"If the market crashes further tomorrow, it would be disastrous with several brokers going bust.''

Mr Vivek Seth, Head, Capital Markets, Birla Global Finance Ltd, a prominent financier of equity market activities, said: "We are getting several calls from investors/brokers for funds. Money is not a problem but brokers should be eligible to get loans.''

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