The stock market surge of the past few weeks has seen borrowers flocking to banks for loans against shares.
After the sharp fall in the stock markets in April, both brokers and the retail borrowers had started avoiding these loans.
Banks also had become cautious in lending to the stock market as the Reserve Bank of India (RBI) had clamped down on bank lending to stock markets.
The RBI had put the stock market exposure at 5 per cent of the total advances which included both fund and non-fund based products like guarantees and also banks investments in stock markets through mutual funds.
"Recently, in the last two three weeks, we have seen more interest in this product. We are way below the 5 per cent limit and that gives us enough leeway," said IDBI Bank's country head (retail banking) Ajay Bhimbhet.
Adds Standard Chartered Bank's head wealth management Vikram Issar: "There has been an increase in the retail interest in the past two weeks. However, the broker interest had been triggered a bit longer -- say around four weeks. Till mid-October the market was not so good. The situation has improved now."
The retail loans in this segment need not have to be included in the 5 per cent limit.
"If retail loans are for the people who want to re-invest in the market then only these cases are taken as stock market exposure. The bank does a due diligence on the reasons for the fund requirements. Also a disclaimer is taken from the borrower on the reasons for borrowal and a check is put on these accounts, " adds Bimbhet.
With the introduction of rolling settlements the need for working capital has increased for the brokers. "Instead of weekly settlements, brokers now have to now make daily settlements in the rolling settlements which has increased their working capital requirement. Also the margining system has now changed from net basis to gross basis which has also increased the working capital needs," said a senior industry official.
However brokers are facing a queer situation as banks are not too willing to lend fund to them. "The bigger players in the market are near the 5 per cent level or have already breached the limit. These banks are not increasing their broker exposure," says a senior official.
Private sector banks and foreign banks were the most active in the market. Public sector banks did not have the systems nor the expertise to manage the product.
However the change in the guidelines have affected the lending capacity of these private and foreign banks.