Bankers across the board are not ready to invest in the capital market even though the Reserve Bank of India (RBI )has announced in its mid-term review of credit and monetary policy that banks' exposure in the markets could be up to 5 per cent of the total outstanding credit as on March 31, 2000, of the previous year.
Banks can invest in the market by way of investments in shares, convertible debentures and units of mutual funds (other than debt funds). However, the exposure of public sector banks is already low and has not touched the existing 5 per cent (of incremental deposits) cap.
As a percentage of advances, none of the banks has more than 1 per cent of advances invested in stock markets.
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Says Central Bank of India's executive director, Cherian Varghese: "We have adopted a very cautious approach to the stock market. The risk involved in the stock market is much higher therefore we prefer debt instruments where the returns are assured and only credit risk is involved."
According to HDFC Bank managing director Aditya Puri, "The RBI wants the capital market in India to develop. The new norms is aimed at tying up the financial aspect in developing the capital market. The new regulations are friendly to the financial institutions and is also good for the stock market. We are a big player in the market due to our dealings with the stock brokers, exchanges."
"If an opportunity arises we will invest in the market. It will depend on our analysis on the market. However no final decision has been taken on these fronts," he said.
The RBI said that in cases where banks' current investments in shares are in excess of 5 per cent of outstanding credit as on March 31, 2000, they will have to bring down their investments gradually to conform to this prudential norm, by March 31, 2001.
Some of the new generation private sector banks had taken a substantial exposure in the sector which will now have to be trimmed.
The RBI has also clarified that in respect of those banks where the present outstanding investments in equities are relatively small and well below the 5 per cent overall ceiling, as a prudential measure, the board should also lay down an annual ceiling for fresh investments in equities.
This will help the banks to make an increase in fresh investments in equities "in a phased, gradual and cautious manner, within the absolute ceiling fixed by the Board for each year" the policy said.