Banks may pare commodity exchange stakes

Banks may have to reduce their holding to a maximum level of 5%.

The State Bank of India (SBI), ICICI Bank, Punjab National Bank (PNB) and Canara Bank may have to cut their stakes in commodity exchanges if the suggestions of the working group on warehouse receipts and commodity futures are accepted by the Reserve Bank of India (RBI). The Indian central bank today put the group's report on its website.

"Banks may reduce or divest their equity holding to a maximum permitted level of 5 per cent over a period of time to avoid any conflict of interest and address the regulatory concern that owners of commodity exchanges do not also become traders in these exchanges," said the report.

SBI holds a 30 per cent stake in the Multi-Commodity Exchange (MCX) and ICICI Bank holds a 15 per cent stake in the National Commodity and Derivative Exchange Ltd (NCDEX). Punjab National Bank and Canara Bank, too, hold 8 per cent each in NCDEX.

The group has also recommended that banks be permitted to offer futures-based products to farmers to enable them to hedge their price risk.

To enable banks to offer such products, it has suggested that banks may be permitted to have proprietary positions in agricultural commodities within certain prudential limits.

It has also suggested amendments to the Forward Contracts (Regulation) Act, 1952, and has recommended the Forward Markets Commission (FMC) should evolve a framework for introducing options trading in agricultural commodities in India.