Open Badla To Fis, Banks, Says Bse

The Bombay Stock Exchange has proposed that badla should be used as a money market instrument. According to BSE executive director R C Mathur, a detailed proposal to this effect was recently forwarded to the Securities and Exchange Board of India.

We have requested Sebi to allow badla as a money market instrument so that more players can play a significant role in badla finance. There is a need for banks and financial institutions to actively participate in the process so that complete integration of the money market takes place, Mathur told Business Standard.

Mathur was hopeful that Sebi would take up the issue with the Reserve Bank of India. He said that the market is now divided into the normal money market and the badla market.

 

In badla finance, rates are determined on the basis of demand and supply of funds. Market operators believe that the current badla rates of 45 per cent are unrealistic. We can achieve an integration of the money market if we manage to recognise badla as a money market instrument, Mathur added.

The BSE proposal is based on three factors. First, the presence of the screen-based trading system for badla which ensures transparency. Second, the safety that can be ensured as money is given against shares which are held by the clearing house of the stock exchange. Finally, the presence of the depository. This will reduce the risk of badla financing even further, explained Mathur.

At present, banks, mutual funds and financial institutions are not allowed to participate in badla finance by the RBI. RBI sources said no formal proposal had been made by any bank to it. However, the issue was one of the key points raised by bankers in last months meeting with RBI deputy governor S P Talwar. Bankers suggested that participation by banks in badla finance could be one way to activate the capital market, the sources said.

Leading players pointed out that mutual funds are banned from lending funds by Sebi. However, mutual fund players say badla finance is not lending money.