Sbi To Slap 60% Margin For Loans Against Shares

State Bank of India (SBI) plans to impose a margin of at least 60 per cent for lending against shares to promoters, and charge the maximum possible interest rate of 17.5 per cent. The prime lending rate of SBI is 14 per cent and the maximum spread over the PLR is 3.5 per cent.

SBI has also decided to stick to the maximum permissible bank finance (MPBF) method to advance working capital funds and adopt the cash flow and turnover method only for the seasonal industries.

"We had solicited the views of our corporate clients, and they feel that the system of MPBF can be continued," said a senior SBI official.

 

The countrys premier bank will lend only to those non bank finance companies (NBFCs) whose principal activity is hire purchase and leasing.

According to an SBI official, they will continue to subscribe to the bonds issued by financial institutions.

He pointed out that this will be a decision taken by the treasury desk and not by the credit department.

Among other banks which plan to advance loans against shares are Bank of Baroda which is planning to charge 17.5 per cent on such loans.

A margin of 60 per cent implies that a borrower pledging shares worth Rs 200 crore will get a loan of Rs 80 crore.

Given that the margin requirements are going to be high, it is expected that substantial sums of money cannot be raised through this route.

Secondly, these shares will come under the perview of 5 per cent of incremental deposits. "Raising money from banks by pledging shares should be used as the last option by the promoters", says an SBI official. For promoters, this route can, at best, be a minimised version of bridge finance.

This could well lead to other public sector banks following the method adopted by SBI. Bank of Baroda has offered its clients all the three options - MPBF, turnover method and cash flow method for ascertaining their credit requirements.

The State Bank of India officials said that in the present environment it was not necessary to have two sets of prime rate - one for working capital and other for project finance.

They pointed out that their clients paid slightly higher when they availed of project finance.