HDFC Bank gets nod to up capital market exposure

The Reserve Bank of India (RBI) has allowed HDFC Bank to raise its capital market exposure to 8 per cent of its outstanding advances (at the end of the previous year) from the current 5 per cent.

"We have received a letter from the RBI permitting us to increase our exposure in the capital market up to 8 per cent of the bank's outstanding advances at the end of the previous year which stood at around Rs 17,700 crore," said a senior HDFC Bank official.

The 8 per cent limit is inclusive of the bank's investments in equity shares, convertible bonds and debentures and units of equity-oriented mutual funds, advances against shares to individuals for investments in equity shares (including initial public offerings), secured and unsecured advances to stock brokers and guarantees issued on behalf of stock brokers and market markets.

This is in line with the Central government's announcement in the annual Budget 2003-04 to allow banks with a strong risk management system to increase their exposure to the capital market.

Under the existing guidelines, banks are allowed to take up to a 5 per cent exposure. HDFC Bank is the first bank to receive the RBI approval in this regard.

IDBI Bank has applied to the RBI seeking approval to raise its capital market exposure to 10 per cent from the present 5 per cent, said IDBI Bank managing director Nageshwar Rao.

"Considering the bank's strong risk management system, the RBI should consider our case also," said Rao.

"The central bank assessed HDFC Bank's risk management system in January and granted the permission," said banking sources.

The approval to permit banks' to increase their exposure to capital markers will be done on a case to case basis, he added.

Banks' lendings to sensitive sectors such as capital market, real estate and the commodities sector during 2003-04 had increased in absolute terms.

Scheduled commercial banks' advances to the capital market increased by 34.17 per cent to Rs 3,333 crore at the end of March 2004 against Rs 2,484 crore in 2003, said a report on the trend and progress of banking in India 2003-04.