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Banks against fresh guarantee exposure to CSE brokers

George Smith Alexander Commercial banks have decided against taking fresh exposures on guarantees to the CSE (Calcutta Stock Exchange) brokers. Bankers are also mulling the option of increasing the margins for both funded and non-funded exposure. The move follows the CSE decision to revoke bank guarantees of brokers despite having margins to cover the deficit, bankers pointed out.

According to a senior banker, banks will not issue fresh guarantees to the CSE brokers for the time being unless they have an impeccable record. Banks have now become more vigilant after the recent meltdown in stocks and also due to the payment crisis in CSE.

In the last few years there had been no invocation of bank guarantees in BSE ( Bombay Stock Exchange) and NSE ( National Stock Exchange) and bankers considered the guarantee exposure safe enough. They are now finding that the guarantee fund of the CSE is not adequate enough.

Banks are also considering increasing the margins for loans against shares and also for guarantees to the CSE brokers. They are mooting an idea of margins to the extent of 50-60 per cent because the exchange risk of CSE has gone up because of the defaults in the exchange.

Bankers are now wary of lending working capital loans and term loans to the brokers as the end use of the loans cannot be checked.

Banks have a margin of around 25-30 per cent on the bank guarantees, which they have lent to the brokers. In some of the cases, however, the collateral by way of securities has been covered fully. With the fall in the value of the securities, banks are still undecided on whether to hold on to the securities or to sell it off in the markets.

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