Rbi Mulls New Norms For Loans Against Shares

The Reserve Bank of India has hinted that it might formulate new guidelines and banks for lending to brokers against securities, and financing IPOs.

The three deputy governors - had the second review meeting with bank chiefs yesterday, wherein the matter of bank finance to stock brokers and loans against shares was discussed.

According to a statement issued by the RBI, "The meeting discussed recent concerns expressed in various quarters regarding banks' role in financing stock brokers and individuals against shares. It was discussed in the context of various steps initiated by Securiites and Exchange Board of India to check the volatility in the stock market."

 

The RBI indicated that the matter about IPO financing and banks' role in financing stock brokers "will be reviewed and regulatory measures, generally to cover all banks or specific to banks could be considered as and when needed," the statement said.

During the meeting, banks informed RBI that they were also inclined to be cautions in financing IPOs and issuing of guarantees on behalf of stock brokers. Banks talked about their internal review mechanism relating to lending margins and fixing prudential exposure limits. During the meeting bankers said that while the banking system is not over extended in aggregate, some banks were more liberal than others in issuing quarantees to brokers toward meeting margins requirements of the stock exchanges.

Banks that were active in the area of lending to brokers explained about the safeguards observed by them and also indicated that they are continuously undertaking internal reviews.

Some of the banks also expressed that they do not see any serious cause for concern from the banking side though there may be significant flow of funds other sources of stock market.