RBI cuts share finance margin to 40%

The Reserve Bank of India yesterday cut the margins that banks have to maintain for providing finance against shares to 40 per cent from 50 per cent. The measure aims at creating liquidity.

Banks on Monday pressed the sell button and made frantic calls to their clients to top up their margins as the stock market plunged by over 800 points in intra-day trades.

With prices of scrips taking a huge beating, clients who had availed of loans against shares had two options before them "" either offer more securities to make up for the loss in the value of pledged shares or have the pledged shares sold in the market.

"It has been decided to restore, with immediate effect, the status quo ante on margins that banks have to maintain for financing against shares/IPOs/issue of guarantees. The margins will now be 40 per cent as against the earlier level of 50 per cent," an RBI release said.

Furthermore, the minimum cash margin of 25 per cent (within the margin of 50 per cent) stands reduced to 20 per cent. The margins against shares were increased from the level of 40 per cent to 50 per cent in January 2004.