Financial Daily from THE HINDU group of publications
Wednesday, Oct 26, 2005
Financial Daily from THE HINDU group of publications Wednesday, Oct 26, 2005 |
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Money & Banking
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Credit Policy Markets - Stock Markets Logical; may not impact stock prices Our Bureau
Mumbai , Oct. 25 THE Reserve Bank of India's decision is unlikely to have any impact on stock prices, as most of the banks have not utilised this facility in the past. "The RBI's move to change the maximum limit to capital market exposure from 5 per cent of advances to 40 per cent of the net worth is a very logical step since exposure to any sector should ideally be linked to its risk taking ability, and differentiating that by using net worth will mean that banks that have a strong capital base will evaluate such lending on merits," said Mr Amit Chandra, Joint Managing Director, DSP Merrill Lynch. However, he said the move would fortunately not have a disruptive impact on the markets since most of the Government banks have exposures to capital market that are well below the prescribed limits. For some of the market players, key announcements by RBI were more or less within expectations. "Hike in repo rate and reverse repo rate was in line with the market expectation and this would not have any impact on the stock market," said Mr R. Shree Shankar, Head of Research, IL&FS Investsmart. He said the exposure of banks in capital market to 40 per cent of net worth would be beneficial for some of the aggressive private sector banks. However, he said if the exposure of banks in capital market increased, the risk profile of the bank would be higher and this could lead to rise in interest rate in general. Some players said the exposure limit linked to net worth of banks rather than advances could lead to some of the weak banks reducing their exposure in the capital market. "Market participants who have credit facility from weaker banks could be in trouble as these banks will have to reduce their exposure," said Mr V.K. Sharma, Head of Research, Anagram Stock Broking.
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