The Reserve Bank of India (RBI) is planning to revise the guidelines relating to investment by banks in the capital market. The move forms part of the central banks attempts to revive sentiment in the bourses and stimulate flow of bank funds into the market.
This was indicated by RBI deputy governor S P Talwar, who met heads of commercial banks yesterday to take stock of the role banks could play in reviving the capital market.
Bankers, who attended the meeting, said that senior RBI officials reviewed the existing norms to see if these were hindering banks from investing in the primary and secondary markets.
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The RBI asked bankers as to what role banks could play in improving the market sentiment.
Overall bankers took a negative stand towards the entire issue and stated that the onus of reviving the equity market should not fall on them. The made it clear to the Reserve Bank of India that the role of banks was to lend money to projects and meet working capital needs, said a banker who attended the meeting.
Issues related to bridge loans, loan against shares, stamp duty problems and dematerialising of shares was also discussed during the meeting, said sources.
The Reserve Bank of India pointed out that while banks are allowed to invest 5 per cent of their incremental deposits in the capital market, none of the banks have utilised the limit.
Bankers,however, expressed fears that with the capital market being volatile, banks may have to provide huge depreciation for their equity investments, which will hurt their bottom lines.
The central bank officials also pointed out that the commercial banks have not been extending bridge loans despite being allowed to do so.
Citing the lull in the primary market, bankers said clients themselves had not approached them for this.
In the meeting, bankers suggested removing the 5 per cent ceiling for investments in the capital markets and instead allow banks to internally decide on a ceiling.
They also asked the RBI to allow banks to fix an internal ceiling for bridge loan advances.
The consensus among bankers was that the market cannot be revived unless the investor confidence was revived and that banks can only act as the financier to market intermediaries like brokers and sub-brokers.
Among those prefffsent during the meeting were chiefs or senior representatives of State Bank of India, Bank of Baroda, Bank of India, Vysya Bank, Central Bank, Union Bank of India, Punjab National Bank, Canara Bank, Standard Chartered Bank, ANZ Grindlays Bank, Citibank, Hongkong Bank and a representative of the Securities and Exchange Board of India.