IDBI seeks increased exposure to equity market

Industrial Development Bank of India (IDBI) has approached the Reserve Bank of India (RBI) to increase its exposure limit to the equity market.

After the merger of IDBI Bank with IDBI, the new entity has approached the RBI as it has breached the five per cent limit of outstanding advances at the end of the previous year set by the regulator.

Its outstanding advances as on March 31 stood at Rs 45,400 crore while its exposure to the capital markets is over Rs 2,270 crore, exceeding the five per cent limit.

"We have urged the regulator to either exclude the development finance institution's legacy equity exposure from the overall set limit of five per cent or increase the cap of equity exposure to 8 per cent," said IDBI sources.

Historically, IDBI has exposure to various projects and there have been occasions when its loan exposure got converted into equity.

The apex bank in February had permitted HDFC Bank to raise its capital market exposure to 8 per cent of outstanding advances at the end of the previous year.

The bank is also planning to set up a non-banking finance company to increase its exposure to the capital markets.

India's largest bank, the State Bank of India (SBI) is also planning to debut in the space of broker financing. According to banking sources, the bank has set aside a corpus of Rs 200 crore to start broker financing as a pilot project.

SBI's current exposure is about 1.5 per cent of its net advances, hence it has enough leeway for broker financing.

This is in line with the announcement made in the Union Budget 2003-04 which stated that the central government would allow banks with a strong risk management system to increase their exposure to the capital market.

Banks lending to the sensitive sectors including capital market, real estate and commodities sector during 2003-04 increased in absolute terms.

Advances by scheduled commercial banks to capital market increased by 34.17 per cent to Rs 3,333 crore at the end of March 2004 against Rs 2,484 crore till March 2003, said the report on trend and progress of banking in India in 2003-04.