Bank financing for margin trading to continue

MUMBAI, NOV. 16. The Reserve Bank of India has decided to continue the scheme of extending finance by banks to stockbrokers for margin trading until further notice. The apex bank in a notification to all scheduled commercial banks said the board of each bank should formulate detailed guidelines for extending finance to the stockbrokers within the overall ceiling of 5 per cent for exposure to capital market.

On September 22, banks were permitted, on an experimental basis, to extend finance to stockbrokers for margin trading, for 60 days (up to November 22). The guidelines have been reviewed by RBI in consultation with major commercial banks, it said. The RBI said banks should formulate the guidelines subject to following parameters like maintaining a minimum margin of 40 per cent on the funds lent for margin trading.

The shares purchased with margin trading should be in dematerialised mode, under pledge to the lending bank. The bank should put in place an appropriate system for monitoring and maintaining the margin of 40 per cent on a regular basis. The bank's board should prescribe necessary safeguards to ensure that no `nexus' develops between inter-connected stock broking entities/stockbrokers and the bank in respect of margin trading. Margin trading should be spread out by a bank among a reasonable number of stockbrokers and stock broking entities, it added. The RBI-SEBI technical committee will again review the guidelines in June 2002 in the light of the experience.

The RBI said the audit committee of the board should monitor periodically the bank's exposure by way of financing for margin trading and ensure that the guidelines formulated by the board, subject to the parameters, were complied with.

Banks should disclose the total finance extended for margin trading in the `notes on account' to their balance sheets, it added.

- PTI

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Section  : Business
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