Bank strike pulls mkt volumes down 50%

Brokers pay out of own pocket to meet settlement, MF allocations too hit

The two-day bank strike on Monday and Tuesday caused the stock market volumes to tank, with brokers reducing the exposure they allowed clients on account of funds remaining stuck in the banking system as cheques failed to clear.



Mutual fund allocations also saw a two-day delay for clients with accounts in these banks, according to market watchers.

Alok Churiwala, vice-chairman of the BSE Brokers’ Forum, said brokers are often forced to meet settlement requirements from their own pocket when client money is stuck in the banking system.

“Brokers are constrained by time-bound pay-in and payout schedules. Operations are hampered when banking transactions are affected. Brokers attempt to meet the difference through their own capital, which is an additional cost on brokers,” Churiwala said.



Deven Choksey, managing director and CEO of K R Choksey Securities, said the strike has also had an impact on market volumes.

“Volumes come down because brokers reduce the amount of exposure they allow their clients on such occasions. Turnover has come down on account of the strike,” he said.

 

The value of trades on the National Stock Exchange and the BSE fell over 50 per cent on Monday and 46 per cent on Tuesday from the average daily volumes over the previous one month. Trades on Monday and Tuesday were worth Rs 92,782 crore and Rs 1,06,258 crore, respectively, compared to the previous month’s average turnover of Rs 1.97 lakh crore, even excluding expiry day volumes which tend to show a significant spike.

The working capital requirements of brokers have gone up on account of the strike, said a senior broker. Client cheques were held up because of the strike, but brokers have to meet settlement obligations, paying cash for the orders that their clients had placed. C H Venkatachalam, general secretary, All India Bank Employees Association, had said on Monday that a 100 million cheques worth Rs 7,40,000 crore couldn't be cleared.



Brokers who had to borrow to meet their short-term requirements found funds dearer than usual.

Ultra short-term rates saw a significant spike. Yields on one-month commercial paper and Certificate of Deposit rates shot up by more than 20 basis points in Tuesday’s trade, Bloomberg data showed.

The bank strike also impacted primary fund raising activity both in debt and equity. The Rs 500 crore follow on public offering of Engineers India had to be extended by two days, while the closing date for some new fund offers of mutual funds, too, had to be postponed.

“Private banks were accepting cheques, but PSU bank clients faced inconvenience as they were not able to move funds from their bank to the brokers,” said Santanu Syam, executive director, Angel Broking.



Jayant Vidwans, director, Chaitanya Financial Consultancy and former president of the Society of Financial Planners, said mutual fund investors with accounts in nationalised banks have been impacted.  “There would be a two-day delay in allocation of funds. Investors would only get their mutual fund units two days later than they would otherwise have got,” he said.

Public sector bank employees struck work on Monday and Tuesday to press for their demands including a quick resolution to wage negotiations and a halt in banking sector reforms.