RBI weighs equity market leeway for banks

The Reserve Bank of India (RBI) is learnt to be deliberating a case-to-case basis approach for allowing banks to have additional exposure "" beyond the stipulated 5 per cent "" in the equity market.

Finance minister P Chidambaram in his budget announcement emphasised the need for the banks to have more leeway to play in the equity market.

According to banking sources, instead of hiking the umbrella limit for banks' equity market investment, RBI is thinking of allowing some of the stronger banks which have their risk management system in place as and when they apply for additional limits.

The ensuing policy announcement may see a set of conditions, primarily related to internal risk management of the banks for allowing them to operate in the equity market in excess of prescribed limit.

Sources added that there was another proposal to ask individual board of banks with less exposure to the equity market to analyse their risk management systems and become active in the equity market. However, no final decision was taken as far as the proposal was concerned.

Meanwhile, the RBI has also mooted an amendment to the Banking Regulation Act for allowing banks' to enter the equity derivatives market. In order to ward off the impact of rising interest rates, banks have been lobbying hard for entering the derivatives market.