Bank’s Equity Market Exposure Limit May Be Enhanced

Author: MP Rana

The government is in discussion with the Reserve Bank of India for considering a proposal of RBI to raise the exposure limit of banks to the equity markets. This measure would help in boosting up the financial market with domestic institutional investment in a situation when Foreign Institutional Investors are departing from it. The RBI has provided some data to the government to take a decision in this regard, according to sources.

Under the present scenario, a bank is allowed to invest a maximum of 20 percent of its net worth in a company and in case of a group of companies the investment exposure is limited to 40 percent of the net worth. But this current bank investment limit is met by few of the Indian banks only and most of them are well below it.

The bank exposure limit may be upgraded only for those banks that are currently have sound risk management. These measures would be taken on a temporary basis to bring out some financial stability in the market and after a certain period of time banks may be asked to revert to their original positions.

Yesterday, the Reserve Bank of India came up with a decision for holders of certain nature of saving bonds to be pledged as collateral for obtaining loans from urban cooperative banks, to strengthen the financial system.