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RBI demands banks' market exposure details

The Reserve Bank of India has directed all commercial banks to submit details of their capital market exposure for the quarter ended March 31 ahead of a key policy statement next week, an RBI official said on Tuesday.

The official said the directive was part of a routine exercise and not linked to a recent scandal in which bank funds were allegedly misused to ramp up share prices.

"We have asked all banks to give their capital market exposure as part of their routine quarterly requirements," a senior RBI official said.

The data will be reviewed by a technical committee comprising officials of the central bank and capital market watchdog Securities and Exchange Board of India who will then submit their recommendations to the RBI.

Analysts expect the central bank to tighten guidelines on banks' capital market exposure and their risk management norms when it announces its monetary and credit policy for 2001-02 next week.

On Saturday, a senior finance ministry official said the central bank will revise guidelines governing banks' exposure to capital markets as part of its monetary and credit policy.

Media reports have said banks' funds were misused to ramp up share prices.

A stock market slide since the beginning of March has eroded the value of shares held as collateral by banks and sparked a liquidity crunch among some cooperative banks.

One bank, Madhavpura Mercantile Cooperative Bank, is facing liquidation after it lent excessively to stock brokers in contravention of central bank rules.

Stockbroker Ketan Parekh, also known as the 'Bombay Bull', was arrested last month by CBI on a complaint by state-run Bank of India that it lost Rs 1.37 billion when cheques issued on behalf of Parekh by Madhavpura bank bounced.

Second time

The central bank is asking for capital market data from banks for the second time in less than a month.

In the first week of March, the RBI had directed select private sector, foreign and large state-run banks to submit their exposure to equities after local media reported that a private sector bank had exceeded prudential limits set for capital market exposure.

The 30-shares Sensex has lost nearly 19 per cent since the end of February.

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