Banks are not enthused about extending liquidity support to the market, even as a joint meeting of the Reserve Bank of India (RBI) and the Securities and Exchange Board of India is slated to discuss margin trading and other related issues on Tuesday. According to senior bankers across the industry, the move may have come in quite late in the day.
Says a senior executive of one of the private banks: "Even if banks are allowed to fund margin trading, no one wants to invest in the market right now. In today's environment no one wants to take any risk."
Bankers and market players were unanimous that the basic problem in the stock market was one of sentiments and the underlying fundamentals and not the lack of liquidity.
Adds IndusInd Bank's senior vice-president V B Raju: "No bank would like to enter the market at this point of time. It is a time for exit for most of the customers. At present, there is no lack of liquidity in the market. If margin trading is implemented only the sentiment will improve. However, no one would like to risk entering the market now."
Another senior banker said that all leveraged products work only in a bull market. Products such as margin trading are never meant to prop up a bear market as no one is going to enter the market at this point of time. Cash is the best hedge and people would like to hold on to liquid cash with the impending news on US retaliatory attacks.
Market observers feel that as long as the RBI does not change its rule on capital market exposure (5 per cent of outstanding credit) there may not be any change. "Only a handful of the banks has the expertise to handle capital markets. Most of the banks who were active in the market are now looking at cutting down their exposure to stay within the 5 per cent mark and the RBI does not seem to be in any mood to relax the 5 per cent mark," said a market observer.
