Govt may raise bank exposure limits to equity

The government has sought data from the Reserve Bank of India to consider a proposal to enhance the investment limit for bank exposure to equity markets. This will be part of several measures to boost domestic institutional participation in the markets at a time when foreign institutional investors (FIIs) are exiting.

At present, a bank can invest up to 20 per cent of net worth in a single company and up to 40 per cent of net worth in a group. Most banks are well below the present stipulation. The limit may be enhanced only for those banks that have sound risk management practices.

Sources added that these measures will be temporary and banks may be asked to unwind their positions to original levels within a stipulated period.

The sources also said the Securities and Exchange Board of India (Sebi) may enhance the margin requirement with stock exchanges as an extra precaution against delivery defaults.

The regulator may also make it mandatory for institutions to put up cash collateral for short sales against the current practice of pledging government securities.

These, however, are unconventional measures that could be adopted in extreme conditions, the sources added.