Badla financiers pulling out funds

ENS Economic Bureau

Mumbai, May 27: The 130-year old badla (carry-forward business) market on the Bombay Stock Exchange (BSE) is jumping during its last leg of survival before the trading system finally goes off from the BSE on July 2. The weighted average badla rate shot up to 12-13 per cent on Saturday from the earlier average of 8-9 per cent.

The badla market did not face difficulty to collect a kitty of Rs 4,000 crore during the bull phase, but the same badla market on Saturday faced difficulty to get even a relatively small sum of Rs 800 crore. Short of funds for carrying over the outstanding positions to the next settlement that begins on BSE on Monday, the interest rates on the badla market on Saturday jumped by over five per cent to around 13 per cent from the usual 7-8 per cent.

This follows the ongoing withdrawal of vyaj badla funds by the retail, institutional and high networth individuals who had been perennially financing the carryover business on the BSE. The vyaj badla market had offered attractive returns to these investors. With the Sebi ban on the badla system and other related deferral products announced on May 14, there has been shortage of these funds, and hence the firming up of the interest rates.

As the deadline of badla ban is nearing, financiers have started shifting their funds either to debt markets or growth funds where the yields are equally attractive. Thus, the badla financiers have already begun parking their funds elsewhere, including debt market and mutual fund. This has contributed to the shortage of badla funds.

Brokers said that after the badla rates shot up at the Bombay Stock Exchange (BSE), they informed their regular clients who were participating in markets as badla financiers, but they turned down their request saying that they have already parked their funds elsewhere in the wake of Sebi’s impending ban on badla.

Badla rates at the BSE firmed up in Saturday’s Borrowing and Lending of Securities Scheme (Bless) session and averaged at 9.50 per cent to 10 per cent. On the higher side, the badla rates reached a high of 12-13 per cent and on the lower side it was around 7 per cent, brokers said.

Sebi decided to ban the badla and all deferral products at its May 14 meeting and decided to bring additional 251 stocks under compulsory rolling settlement from July 2. As a result of this all the stocks covered under BSE’s Bless and National Stock Exchange (NSE)’s Automated Lending and Borrowing Mechanism (ALBM) would be traded under the rolling mode, leaving no scope for carry forward.