At least some of the private sector banks are ready to take advantage of the government's decision to enhance banks' capital market exposure.

Unlike their counterparts in the public sector, these banks are market savvy and are eager to take advantage of the proposed change. Banks' capital market exposure is now capped at 5 per cent.

Abhay Aima, head, private banking and equities, HDFC Bank, said: "The new measure should infuse far more liquidity into the market in terms of funds available as banks are flush with money."

However, there is a rider to this. Only strong banks with sound risk management systems in place can take advantage of this increased exposure. Very few of the public sector banks would qualify and most of them are not even close to the existing 5 per cent limit.

According to figures available, banks' capital market exposure as a percentage of their advances as on March 31, 2004, ranged between 0 per cent and 3.22 per cent.

The highest exposure was of Standard Chartered Bank at 3.22 per cent. The average exposure was at 0.33 per cent, while the total exposure stood at Rs 2,588.50 crore (Rs 25.88 billion) at the end of the year. None of the banks has reached the five per cent limit.

Market participants, however, said expectations of infusion of fresh money would be enough to send the right signals to the market.

In 2003-04, a total of 36 banks stepped up advances to the capital market. Net advances to the capital market was up 21.2 per cent in the financial year 2003-04, compared with a decline of 15.2 per cent in 2002-03.

Advances to the commodities sector was up 10.5 per cent in fiscal 2004 compared with a modest rise of a 4.6 per cent in fiscal 2003.

Banks have been lending to sectors which are sensitive to asset price fluctuations. Such sectors include capital markets, real estate and commodities.

The net position of lending to three sensitive sectors by 36 banks was up 13.1 per cent to Rs 20,723 crore (Rs 207.23 billion) in 2003-04 from Rs 18,324 crore (Rs 183.24 billion) in 2002-03.

Thirty-six banks advanced Rs 1,744.42 crore (Rs 17.44 billion) to the capital market in 2003-04 as against Rs 1,374.32 crore (Rs 13.74 billion) in 2002-03. Net advances to the commodities sector moved up to Rs 7,861.17 crore (Rs 78.61 billion) from Rs 7,116.09 crore (Rs 71.16 billion).

Advances to real estate sector crossed the Rs 11,000 crore (Rs 110 billion) mark to Rs
11,116.98 crore (Rs 111.17 billion), up 13 per cent over Rs 9,833.69 crore (Rs 98.34 billion) advanced in 2002-03.

Among the 36 banks, Bank of India's net advances to the capital market sector were higher at Rs 426.89 crore (Rs 4.27 billion) in 2003-04. ICICI Bank increased their advances to Rs 248.93 crore (Rs 2.49 billion) from Rs 140.02 crore (Rs 1.40 billion).

Syndicate Bank recorded a 122 per cent rise in net credit to the capital market to Rs 241.9 crore (Rs 2.42 billion). The net advances to this sector for IDBI Bank were up 100 per cent and for Canara Bank it was up by 62 per cent.

"We made money last year when the BSE Sensex was northward bound. We will certainly try to take advantage of the finance minister's proposal," said the chairman of a large public sector bank.

UCO Bank topped the list of advances to the commodities sector by value with Rs 645.54 crore (Rs 6.45 billion), followed by Bank of Baroda Rs 612.67 crore (Rs 6.13 billion) and Canara Bank Rs 603.09 crore (Rs 6.03 billion).

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