Bank Funding Of Selloffs To Be Liberalised

The Reserve Bank of India has decided to treat bank advances for picking up government equity through the disinvestment route outside the 5 per cent cap on stock market exposure.

Ministry of disinvestment sources said that the RBI had agreed in principle to their proposal to liberalise the norms for banks to lend more aggressively to successful bidders in the disinvestment programme and was expected to issue detailed guidelines shortly.

At present, banks can lend up to 5 per cent of their advances or 20 per cent of their net owned funds for investment in shares. The central bank has, in fact, proposed to further reduce the exposure level to 2 per cent of advances. The move, the sources said, was part of government efforts to increase the funding options for bidders for the disinvestment programme.

Bankers, however, were not too bullish about the proposal and said they would limit their exposure in the PSUs that are disinvested. "I would not like to block my funds in dud stocks," said a bank chief. Banks have been wary of investing in the stock market with exposure of a major banks in the region 1 per cent region.

The government has also liberalised the use of funds raised through the external commercial borrowing (ECB) and American Depository Receipts or Global Depository Receipts (ADR/GDR) route for funding disinvestment deals. The requisite guidelines are expected to be issued this week. At present, the government does not allow use of ECB funds to invest in stock market and real estate. The relaxation would be limited only for disinvestment deals.

"The relaxation would benefit a company that has already raised funds overseas. The government is aware that the process of ADR/GDR takes about six months to get completed and a bidder would not have the time to raise funds abroad after being declared successful. But we had asked the government to allow this route just to increase the options for PSU buyers," a ministry of disinvestment official said.