Bse In Talks With 3 Banks For Loans Against Shares

The Bombay Stock Exchange (BSE) is in talks with State Bank of India, Bank of India and Bank of Baroda for providing working capital requirements to its members.

Under this scheme, brokers would deposit share certificates as a collateral against loans and the entire operation would be virtually risk-free.

BSE executive director R C Mathur told Business Standard yesterday that officials from the above banks have been already sounded, and that their reactions have been enthusiastic.

Banks are currently declining to provide loans because the slump in share prices would expose them to enormous risks. This is despite the fact that RBI is not against bank loans against securities.

Both parties, the banks and the brokers, involved in the scheme would be benefiting financially.

While banks would attract more business in their core area of lending funds, the broking community would also benefit financially if this scheme comes through, Mathur said..

To start with, he added, the cost of funds would be coming down drastically. The borrowing cost would be limited within 20 per cent, instead of the current badla charges of 40 per cent or even higher. Also, illegal badla financing in B1 group would stop once this scheme is implemented, Mathur explained.

Represe-ntatives of the leading banks have been informed of the need for adequate working capital requirement for brokers and more importantly, their fears about the risks involved against forwarding loans against shares have been allayed.

The BSE proposes to introduce a daily mark-to-market monitoring of securities and immediate replenishment of eroded assets.

This means that if a broker deposits shares (of the A and B1 groups amounting to 710 scrips in all) worth a certain amount to a bank for availing loans, the concerned share prices will be monitored on a daily or weekly basis or whatever time-frame the bank deems fit. Bank officials have already been

sounded out and their reactions have been enthusiastic.