The Sate Bank of India (SBI) has decided to aggressively pursue the business of loans against shares. The bank will target only its retail customers and not offer loans against shares to brokers.
SBI intends to offer the loans against demat shares within a day. A top official stated: "Online checking through the computerised branches will help us offer the loans to our retail customers within the same day."
However, the product would be limited to 100 top traded scrips and would be available to customers having their accounts at SBI's computerised branches across 50 centres. The bank has a small portfolio of loans against shares.
SBI will charge around 15 per cent interest on the loan and will levy a 40 per cent margin on the value of the shares. That is, if the share's market value is worth Rs 100, the customer will get only Rs 60 as loan.
Many nationalised banks are shying away from offering such loans and have chosen to take limited or practically nil exposure to either the retail segment or brokers. Few public banks such as Canara Bank were active in this sector before the recent scam. This perhaps makes SBI the only aggressive public bank in this business. New private and foreign banks, which have been active in this segment, were affected by the fall in the stock prices in April.
Following the market scam, the Reserve Bank of India revised the exposure norms of banks, capping their exposure to 5 per cent of the total advances of the previous year. It also capped non-fund based facilities and investment of banks at five per cent.
Loans against shares to the retail segment are not included as part of the market exposure if these loans are not used for stock market purposes. Most of the aggressive new private banks and foreign banks are also refocusing their energies on the retail front as they have already reached their limits and would not be able to lend to brokers.
