RBI to keep a tab on equity market

The Reserve Bank of india will keep a close watch on the equity market which is in the grip of a bull run. The move followed the policy decision to hike the margin for bank's funding to any equity market related activities.

The standing committee of central board of RBI, chaired by a deputy governor, met today to take a stock of the events following the decision.

The cause for concern has been the rapid rise in BSE Sensex. Even the Z group scrips, which do not have sound fundamentals, has participated in rally which is primarily fuelled by the foreign exchange inflows from portfolio investors.

The RBI's concern stems from apprehensions that any price bubble burst would result in an outflow of foreign exchange.

The RBI hiked the margin for bank funding to share market from 40 per cent to 50 per cent so as to devise an disincentive to equity market exposure.

However, the exposure of banks to stock market is way below the norm of 5 per cent except for some aggressive new generation private banks.

The committee also decided that RBI will work out guidelines to allow banks to be the hub for receiving financial aid from retail customers for tsunami-affected people and places. At present, there is no formal structure in banks to receive individual donations.