Margin must on surety to commodity brokers

The Reserve Bank of India today said banks would have to obtain minimum 50 per cent margin for guarantees issued on behalf of commodity brokers.

They will have to maintain minimum 25 per cent cash margin (within the 50 per cent margin).

The margin requirement will be applicable to those guarantee that are issued in favour of the national level commodity bourses such as National Commodity & Derivatives Exchange (NCDEX), Multi Commodity Exchange of India (MCX) and National Multi-Commodity Exchange of India (NMCEIL), RBI said in a communication to banks.

A similar condition is already in place for bank guarantees issued on behalf of share and stock brokers. These guarantees are issued in favour of stock exchanges in lieu of margin requirements as per stock exchange regulations.

While the central bank has issued this diktat in the form of clarification, it is a signal to banks to be cautious in transactions related to commodities trading especially in the light of volatility, said a Union Bank of India official.

The imposition of margins will squeeze commodity brokers' liquidity. They (brokers) will have to reorient their business and exposure strategies, he added.