The Hindu Business Line : `Banks may need to trim loans against shares'

Banks may need to bring down the loans given against shares and for IPOs once the Reserve Bank of India's revised guidelines on banks' exposure to capital markets comes into force, said Mr M.V. Nair, Chairman and Managing Director, Union Bank of India.

"The issue is to enforce the limit of Rs 10 lakh and Rs 20 lakh for loans against shares, as now it applies to the whole banking system. We will have to monitor this," he said.

The revised guidelines has restricted bank's aggregated capital market exposure to 40 per cent of their net worth and capped the direct capital market exposure at 20 per cent of their net worth.

Even under the revised guidelines, Union Bank has more headroom in its capital market exposure, Mr Nair said. The bank can increase its capital market exposure to Rs 1,630 crore, while the total outstanding as of now is Rs 1,015 crore. The direct exposure can go up to Rs 816 crore against the current outstanding of Rs 630 crore.

Mr Nair was speaking to newspersons on the sidelines of a press conference to announce a tie-up with IL&FS Ltd to provide banking and custodian-cum-demat services for FII clients.

IL&FS will provide the custodian services, electronic safekeeping and undertake settlement of trades. Union Bank will act as banker to the FIIs and manage the remittance of funds, computation of tax and other related banking activities.

The alliance will target 100 new clients by March 31, 2007, Mr Nair said.

This is the first time IL&FS is entering into an alliance for providing custodian services, said Mr Arun Saha, Deputy Managing Director, IL&FS. "To begin with, we will target customers in West Asia and also the US," he said.

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