SBI suggests FM to ban short selling in markets

Chairman Pratip Chaudhuri says 'Black Friday' was more for stock market, banking was not impacted and it was due to wild rumours

To safeguard interest of investors from the negative impact of wild rumours, the State Bank of India (SBI) has proposed the Finance Ministry to ban short selling.

Besides, the country's largest lender has also asked the Reserve Bank of India to increase the cap on credit refinancing for exporters.

Speaking to reporters on the sidelines of opening SBI's 15,000th branch at Suranam village, Sivaganga district (the constituency of Union Finance Minister P Chidambaram) SBI's Chairman Pratip Chaudhuri, “We have recommended the Finance Minister to ban short selling of shares”.

He was responding to a question on SBI's reaction for Black Friday on the stock market, which reported a 800 basis point drop, Chaudhuri said, “ It was more for the stock market, banking was not impacted and it was due to wild rumours.

“We have recommended to the Finance Minister to ban short selling in shares,” he said.

He also said, the Bank also asked the Reserve Bank of India (RBI) to increase the refinancing cap to 100% from the current 50%. All the countries do it, there is an urgent case for us also to do that. We have told this in many forums that export the credit refinance is inadequate. During the crisis time it used to be 75%.

RBI opened a window refinancing in Dollars, unfortunately from June 30th it was closed, because of trade deficit. “We feel that the Dolloar window should be re-opened,” said Chaudhuri.

He also said RBI's move on Liquidity adjustment facility (LAF) rate to 10.25 is “extremely ill advised” because the long term bond rates move in the range between 50 basis point. Because LAF was at 7.2%, long term bond rates were between 7.25 and 7.75%, now they have increased to LAF rate or repo rate to 10.25%, I will be surprised if the bonds rates moves to that level”.

“We have not raised long term deposit rate, today for most of the banks it is at 9-9.5% which compensates the savers for inflation plus there is enormous faith in the banking system that it is stable,” said Chauduri.