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Esops finance cap doubles

BS Banking Bureau in Mumbai | December 25, 2004 16:36 IST

Banks can finance subscriptions to employees' stock option plans up to Rs 20 lakh (Rs 2 million), with the Reserve Bank of India doubling its earlier limit of Rs 10 lakh (Rs 1 million).

Financing under Esops will, however, continue to be treated as banks' exposure to the capital market, and within the overall ceiling of 5 per cent.

Equity market brokers said the move would help the salaried buy shares of companies where they were employed, and thus enter the equity market.

In February, the RBI had advised banks that while extending finance to employees for purchasing shares of their own companies, either under Esops or in initial public offers, they should take their own decision, subject to existing guidelines, including the margin on financing.

The ceiling on bank financing under Esops was set at Rs 10 lakh, subject to a 40 per cent margin.

India Inc has been in a mad rush to announce Esops. For instance, Ram Ratna Wires, at its extraordinary general meeting held on December 22, approved the allocation of up to 400,000 shares to its employees.

On November 29, Moser Baer passed a resolution by circulation and cancelled 1,553,500 options granted to its employees on January 9. At the same time, the compensation committee granted 1,553,500 new options to employees.

Elder Pharma, at its annual general meeting held on September 28, approved a share issue under a scheme called Elder ESOP-2004.

"We have been receiving representations from banks/corporates that as ESOPs have gained in popularity, the existing margin on banks' financing of ESOPs may be relaxed. "The matter has been reviewed by us and it has been decided that banks may now extend finance to employees for purchasing shares of their own companies under ESOPs to the extent of 90 per cent of the purchase price of the shares or Rs 20 lakh, whichever is lower," an RBI release said.


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