Misuse of share lending: RBI may tighten guidelines

Misuse of share lending: RBI may tighten guidelines
EEB & AGENCIES

MUMBAI, FEB 17: With banks and share brokers misusing the system of lending against shares, the RBI is planning to review lending against shares and consider regulatory measures for the purpose. This possibility was indicated by the RBI when the concerns expressed in various quarters regarding banks' role in financing stock brokers and individuals against shares were discussed at a meeting with bankers here on Thursday. Banks informed the RBI that they were inclined to be cautious in financing initial public offers and issuing guarantees on behalf of brokers.

``The meeting was called amidst reports that bank funds are being diverted to the stock market and indiscriminate IPO financing,'' said a banker. The meeting conducted by RBI deputy governors S P Talwar, Dr Y V Reddy and Jagdish Capoor, discussed various issues with chief executives of select public, private and foreign banks. Some banks active in lending against shares explained the safeguards observed by them and indicated that they were continuously undertaking views. RBI, in a statement, said some 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 from other sources to stock markets.

With the market showing huge volatility, a section of bankers suspected that part of the bank credit drawn by the corporates is flowing into the stock market. "There is no way we can prove that the corporates are diverting funds to the stock market as no borrower is asking for a raise in the limit. But if one sees the sudden growth in cash credit and withdrawals from the current accounts, one suspects that the money is not necessarily used for productive purposes," said a banker.