The Hindu Business Line : PSU banks promise additional capital market exposure

Mumbai, Jan. 24 Banks may offer loans to brokers to help them tide over a cash crunch in view of the stock market crash, provided it is within the regulatory limits of exposure to capital markets.

As per regulatory norms, banks are allowed to take exposure to the capital market up to 40 per cent of their networth. It includes the bank’s direct investment in equity, its proprietary holding, investment in equity mutual funds, and advances to brokers.

Bank of Maharashtra’s capital market exposure is around 20 per cent of its networth. Of this, direct and indirect advances account for about 11 per cent and 8-9 per cent is investment.

“We do buy stocks when we see good opportunity,” said Mr M.D. Mallya, Chairman and Managing Director, Bank of India.

Union Bank of India’s exposure to the capital market is about 37-38 per cent, said Mr R.S. Reddy, Executive Director. This includes the investment in treasury and through venture capital funds as well as direct and indirect advances and guarantees to brokers. The total exposure for the bank works out to Rs 1,700 crore.

RBI Norm

“We are within our limits. We will do all that we can to help our brokers who are our clients,” Mr Reddy said.

Banks like Dena maintain their capital market exposure within an internally imposed ceiling of 30 per cent of the networth, below RBI’s stipulated norm. Dena Bank’s current exposure to the capital market stands at Rs 350 crore. This included guarantees to brokers of Rs 140 crore, said a senior official at the bank.

Bank of India may provide additional loans to brokers or adjust margins on the loans to some extent, said Mr T.S. Narayanasami, Chairman and Managing Director.

Market exposure

“This is a temporary phase and we have no problem as of now with regard to our exposure. If the fall continues then we may take steps out of the ordinary,” he said. The current capital market exposure for the bank is about Rs 1,800 crore, which is within its limit of Rs 2,200 crore.

Canara Bank’s investment in capital markets is about Rs 1,400 crore, which is also within the permissible limits, said a senior official of the bank. While the slump in the market is a good opportunity to pick up stocks, it is also necessary to be cautious, he added.

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