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Friday, Jul 09, 2004

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More bank finance for stock brokers

Poornima Mohandas

Mumbai , July 8

THE new private sector banks are a happy lot with the Finance Minister giving them more headroom for lending to the capital market. This move when passed into law by RBI is expected to increase banks' funding of brokers, and thereby increase the official flow of funds.

The Finance Minister has said in his Budget speech, "Allow banks with strong risk management systems greater latitude in their exposure to the capital market. The RBI will issue the necessary changes in these matters".

New private sector banks such as HDFC Bank, Kotak Mahindra Bank, ICICI Bank, IDBI Bank and UTI Bank are likely to benefit since they are near the current exposure limit of five per cent of the previous year's advances.

These banks have been holding talks with the central bank to increase the limit but finally the Finance Minister has announced his intention to give them leeway.

RBI is expected to look at the banks on a case-by-case basis, evaluate their software systems for constant monitoring and then only okay the increase of the capital market limit.

Said Mr Pramod Vaidya, Head-Risk, IDBI Bank, "The increase in capital market exposure will help mostly the private sector banks that are active in the capital market. Even if there is a 1 per cent increase in the limit it will mean a 20 per cent increase in business.

"Most of the increase of business will be in the area of broker funding. It appears that the regulators want more broker funding to go through the official banking channel."

Currently banks finance only about 30-40 per cent of the broker finance market, while the remaining, which is rather unregulated, is through non-banking finance companies and individuals.

"Banks will need to have adequate systems in order to be able to watch each exposure's daily and even intra-day positions. RBI will give more headroom to only those banks that meet the necessary criteria in terms of systems and the mental makeup," said Mr Shailendra Bhandari, CEO, Centurion Bank.

While the active private sector banks will benefit from this proposal, the PSU banks are expected to be nonchalant about it.

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More bank finance for stock brokers

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