Cap Likely On Bank Advances

Finance minister Yashwant Sinha yesterday said the bank funding of capital market transactions, either as direct advances or bank guarantees, aggregated Rs 7,996 crore as on December 31, 1999.

Sinha revealed that a joint committee, comprising officials from the Reserve Bank and the Securities and Exchange Board of India, was considering ceilings on advances against shares as well as prudential levels of margins on advances against shares and initial public offerings.

The finance minister said this in Parliament while replying to calling-attention motion by Kirit Somaiya and Dilip Gandhi on the "situation arising out of reported loss to small investors due to sudden crashing of points in stock market and sanction of loans by banks against shares and steps taken by the government in this regard".

 

Seeking to allay the fears of members, the minister said, "The reported losses due to such fluctuations (in the sensex) are, however, notional since the Sensex was generally on the rise for several months before February, 2000."

According to the minister, an RBI study in respect of 35 banks accounting for more than 70 per cent of the total bank finance against shares revealed that the total advances against shares by these banks amounted to Rs 5,611 crore at the end of December 1999. This included advances against collateral of shares and for IPOs.

The total guarantees, he added, issued by the banks, including the guarantees against pledge of shares furnished by banks to various stock exchanges in lieu of margins, aggregated Rs 2,385 crore as of December 31, 1999.

Sinha maintained that the RBI had already issued guidelines in respect of advances against shares/units/debentures and public sector undertakings bonds to individuals, stock markets and corporates.