A Correct But Already Known Measure

The Union finance minister Yashwant Sinha, yesterday announced that stock lending will be exempted from capital gains tax. Sources indicate that the announcement is unlikely to enthuse the players as this news had been already conveyed by the Central Board for Direct Taxes.

Thomas Sasse, Head Securities and & Custody Services, Deutsche Bank, welcomed the finance minister's decision to exempt stock lending from capital tax gains. "This is an absolutely correct measure," commented Sasse.

According to him, this move is vital for the development of stock lending business in the country. "Stock lending has to be treated differently it does not involve in either buying or selling of securities," Sasse said.

Sasse was of the view that government's decision is unlikely to induce fresh players into this business. "The Central Board for Direct Taxes had already announced this in January 1997. Hence as far as the players are concerned this is not a news," Sasse said.

He further said this decision further confirms to Deutsche Bank's business plans for stock lending in the country.

Market players feel that the stock lending business will only pick up once the necessary legislative changes in the foreign institutional investor norms are carried.

"Currently, foreign institutional investors are not allowed to borrow stocks and till such time the legislative changes are carried out allowing foreign institutional investors to short sell, stock lending is not expected to gain momentum in India," said a source. It may be recalled that the Sebi has already cleared three proposals of stock lending. Three players who proposals have been cleared by the market regulator are -- SHCIL, Deutsche Bank and Reliance Capital and Finance Trust.

Deutsche Bank and Reliance Capital Finance Trust are expected to launch their stock lending schemes soon, Industry sources suggest that their stocks for lending are likely to come from their private client groups -- high net worth individuals.

SCHIL managing director B V Goud had already indicated that it does not want to take any exposure. "We want to be a direct lender. Institutions like the Unit Trust of India will directly strike the deal with the broker and we will implement it," Goud said.