SBI eyes broker financing

SBI Comm and Intl may handle equity broker finance.

State Bank of India (SBI) is debuting in broker financing in a big way. According to banking sources, the bank has set aside a corpus of Rs 200 crore to start broker financing as a pilot project.

The SBI plans to kick off the operations in its Mumbai main branch. Eventually, the bank proposes to convert its subsidiary -- SBI Commercial and International Bank Ltd -- into a specialised branch catering to equity broker finance.

The SBI's exposure to brokers will come under the Reserve Bank of India (RBI)-stipulated stock market exposure norms. Going by this, up to 5 per cent of a bank's net advances can have stock market exposure. The SBI's current exposure is about 1.5 per cent of its net advances and hence, it has enough leeway for broker financing.

Broker financing has been the forte of private sector banks. The brokering community is required to pay margin money to stock exchanges ahead of the payments they get from their clients. "There is huge demand for broker financing," said a banker.

The SBI board has given its nod to the proposal. SBI sources said there was a big business opportunity as few private banks were active in broker financing.

The finance ministry had earlier persuaded public sector banks to be active in equity financing. The ministry had also prompted banks to set up brokering arms to help boost equity market operations. This is because the Indian equity market is largely dependent on foreign institutional investors.

Legal hurdles posed a roadblock for banks, as bankers said that with equity brokering arms, banks would be regulated by too many regulators.

The SBI is a clearing banker for the Bombay Stock Exchange. It is a depository participant for the Central Depository of Securities Ltd and the National Securities Depository Ltd.