NBFCs under scanner for investing in stocks

Non-banking finance companies (NBFC) and a few co-operative banks are under regulators' scanner to ascertain whether they were diverting money to the stock market, a senior finance ministry official said on Wednesday. The official said there was however no evidence to suggest that commercial banks were bending rules to buy stocks.

"Three to four co-operative banks in Gujarat and Maharashtra and non-banking finance companies are under Reserve Bank of India (RBI) and Securities and Exchange Board of India's (Sebi) scanner to ascertain if they are violating rules to put money in the stock market," the official said.

The regulators were especially keeping a close watch on those NBFCs that are promoted by companies, the official said. "Our feeling is that NBFCs are lending to corporates, who in turn could be investing in the market," the official said. "We have already asked NBFCs to give monthly account of their stock market transactions."

The official said that transactions of three to four commercial banks have been probed by regulators but found "nothing wrong". "There is also no evidence so far to suggest that foreign institutional investors have been using unfair means to invest in the stock market and fuel the current rally," the official added.

The Indian equity market has been on a roll and scaling new highs almost every day. The benchmark 30-stock Bombay Stock Exchange Sensitive Index, Sensex, gained 24 per cent since the start of the current calendar and 26 per cent since the start of the current financial year in April.

The official said whether the current stock market rally would continue or not depended largely on the July-September quarter corporate results.

"The first indication (of corporate sector performance) will come on Thursday when figures for advance tax collection are known. If tax collection is good, it means companies have done well in the second quarter," the official said.

Companies will start announcing second quarter results from the first week of October and if results are good, the stock market would rise further, the official added.