UBI stock exposure limit may dip by Rs 400cr

The Union Bank of India's capital market exposure limit may decline by over Rs 400 crore to about Rs 1,630 crore owing to the Reserve Bank of India's new draft guidelines on capping bank capital market exposure to 40 per cent of net worth.

Under the old capital market norms, banks' exposure to capital market was restricted to 5 per cent of advances, translating into over Rs 2,000 crore. At present, exposure, both direct and indirect, stands just about Rs 1,000 crore, chairman and managing director M V Nair told reporters here today.

The direct exposure of public sector bank stood at Rs 613 crore against the limit of Rs 816 crore.

The bank follows stringent internal norms for stock market and equity related exposure, he said. On the impact of Rs 20 lakh ceiling on exposure to any single borrower for the capital market activity, he said the bank may have to reduce the existing exposure of clients whose borrowings that exceed the new norm.

Meanwhile, the Mumbai-based bank has tied up with Infrastructure Leasing and Financial Services (IL&FS) to provide banking and custodial services to foreign institutional investors investing in Indian Capital market.

IL&FS will act as a domestic custodian and settle FII trades executed on the stock Exchanges and provide electronic safe-keeping facility while the bank will manage remittances of funds, computation of tax and other banking related activity.

Under the agreement, IL&FS-Union Bank combine expects to extend services to 100 FIIs by March 2007. It will access clients through IL&FS private equity and broking arm.