Banks have sold only around Rs 20 crore worth of stocks during the recent stock market fall. This is substantially lower than what they unloaded in the crashes of last year.
In the aftermath of the March 2001 stock market scam and the payment crisis that followed on the Calcutta Stock Exchange, banks had sold around Rs 500 crore worth of shares in March-April 2001. And after the September 11, 2001, crisis, banks had sold more than Rs 60 crore worth of shares.
This time around, the selloff has been restricted to around Rs 20 crore with the private sector banks having collectively sold Rs 12 crore and foreign banks another Rs 8 crore in the last three weeks.
"The Reserve Bank of India had introduced strict norms after last year's crisis which involved stock broker Ketan Parekh. Banks have since raised the margin to 40 per cent. Earlier, when the margin was low, they had to resort to selling stocks pledged with them to recover money," said a senior private sector banker.
The RBI has capped banks' stock market exposure at 5 per cent of the total advances including fund and non-fund based facilities.
However, advances to individuals for personal purposes such as education, housing, consumption etc, against the security of shares is exempted from this limit.
Business in the loans against shares segment has gone down as many of the banks have got out of this product. The appetite for funds have also gone down.
"The transformation to rolling settlements from the weekly settlements have also had a major effect on the funding as requirements have gone down. The prices of the scrips have also been comparatively steady and banks did not have to sell scrips at the same level as it did before," another banker said.
ICICI Bank currently has a retail portfolio of around Rs 130 crore. "Despite market conditions this is safe product because the collaterals can be easily liquidated. In the event of crisis, we contact the customer and request him to bring in more stocks or cash," said V Vaidyanathan, ICICI Bank country head (retail assets).
The advances on loans against shares in HDFC Bank is around 4.5 per cent of its total advances. "We review the stress on the portfolio on a continuos basis and in case of market fluctuations the periodicity of checks increases," said a HDFC Bank executive.
"The fall this time has been gradual and customers had enough time to top up," pointed out Standard Chartered Bank's head of wealth management, Vikram Issar.
