Three Banks Violated Investment Cap Limit

The Reserve Bank of India (RBI) has found that the Karnataka Bank, Bank of America and Development Credit Bank Ltd (DCB) had violated the five per cent investment limit in equity shares as on January 31, 2001, though the apex bank said before the Joint Parliamentary Committee (JPC) that it had not taken any action against these banks in this regard.

At the end of January, these banks were found to have exceeded the five per cent cap on investments in shares.

In the case of Karnataka Bank, the exposure was to the extent of 5.87 per cent (excess exposure of Rs 21.23 crore), while for Bank of America, the exposure was 5.04 per cent (Rs 1.34 crore).

According to RBI, since the excess exposure was only marginal in the case of these two banks, the central bank did not feel the need to take any action against them.

In the case of DCB, whose exposure was at 8.29 per cent (Rs 138 crore), the apex bank reported that this was because of its Rs 80 crore investment in the Unit Trust of India's Monthly Income Plan units, which the bank had treated as investment in debt funds and not in equity.

RBI, however, did not accept the bank's explanation and DCB was told to bring down its investment within the prescribed ceiling. As on May 21, the bank's investment was brought down to 3.93 per cent of advances.

According to figures as on Mach 31, 2001, the total investment by commercial banks in equity shares was Rs 9,389 crore -- 2.11 per cent of their domestic advances.

On January 31, 2001, the figure was Rs 8,773 crore (1.97 per cent of advances). RBI has noted that banks have not been making large-scale purchases of shares and debentures on their own accounts.