The Hindu Business Line : Stock slide unlikely to dent PSBs

Banks have two kinds of exposure in the equity markets. One is direct investment in the markets. According to the weekly statistical bulletin, such investments, as on April 28, were valued at Rs 13,898 crore or about 18 per cent of their non-SLR (statutory liquidity ratio) investments. These holdings are now expected to undergo steep depreciation. Bankers said that most of the direct exposures in the equity markets were entirely on account of foreign and new private sector banks. Accordingly, if any depreciation were suffered, it would be mostly by these banks. Public sector banks' exposure was mostly confined to PSU equities and holdings in subsidiary companies. Even these holdings are within the limit of 5 per cent of the outstanding advances prescribed by the Reserve Bank of India, sources said.

The Vijaya Bank Chairman and Managing Director, Mr Prakash Mallya, told Business Line, "We are not affected by this crash. None of the public sector banks is likely to see any big impact."

Advances against equities

A second category of bank exposure is advances against equities and debentures. Under current guidelines, banks are allowed to make advances up to 50 per cent of the market value of the equities and debentures. These margins are reviewed on a daily basis. "The margins will be reviewed and customers will be asked to comply with the guidelines," a high-level public sector bank official said.

"If the customers don't comply with the guidelines, we have the option to liquidate the holdings and recover our dues," he said.

RBI support

Meanwhile, the RBI intervened today and offered to provide liquidity support to banks. The bankers said this support was particularly targeted at the foreign and private sector banks that had opened accounts on behalf of non-resident Indians, foreign brokerage houses and foreign institutional investors. The investors are likely to have recalled their investments leading to a tightening of liquidity for these categories of banks, the bankers said.

Besides, the bankers said, brokerages and institutional investors would also be expected to maintain their margins. Accordingly, some of them had activated their lines for credit with banks, they added. In such a situation it was the private and foreign banks that would be the prime beneficiaries of any liquidity support.

In fact reflecting the tightening liquidity, banks said that several foreign banks were borrowers through the collateralised borrowing and lending obligations markets and buyers of foreign currency in the domestic markets, contrary to normal trends, when they swap foreign currency for domestic rupees. As a result, the 10-year yield has topped 7.60 per cent and the rupee dollar exchange rate went down to 45.68.

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