>RBI move to cap banks exposure to hit street

India's stock markets may be on a roll, but bank funding for individual investors hoping to cash in on the ongoing boom are likely to come at a premium.

After proposing to tighten the norms for non-banking finance companies on their capital market exposure. The central bank has now sought to restrict the flow of funds from the banking system to the primary market.

Further, the new draft norms for capital market exposure unveiled by the Reserve Bank of India on Friday links such exposure to the net worth of banks instead of the old practice of computing it as a percentage of outstanding advances.

Interestingly,
=>while this increases the available fund that all banks put together can lend for stock market investments by 10-15%,
=>the proposed rules clamp down on the money that a single individual can borrow for IPOs as well as secondary market investments.


The move was also likely to curb margin financing in the stock markets in a big way.

“It is certainly a jolt to traders. The move will trigger some selling in the market on Monday,” Vijay Kedia of Kedia Securities said.

However, the exposure limit of Rs 10 lakh on IPOs would ensure that every segment of retail investors benefited from the new issues, he added.

“Right now, we are seeing IPOs getting 40-50 times subscription. This will end now,” Kedia said.

Ketan Jhaveri of DH Securities said the proposed guidelines required more clarity. “There should be more clarity on the single borrower issue. Currently, corporates are allowed to take unlimited funds by pledging shares. It is very difficult to bring it down immediately,” he said.

Head of another broking outfit said the move would help "contain over leveraged position” in the stock markets.

The sharp correction witnessed in June was also attributed to selling of shares held as collateral by banks.

“The time given, till January 1 next year, to lower corporates’ exposure to the proposed levels is also not too long. We can see some sort of correction in the market in the coming days because of this,” he said.