The government is set to allow two private banks, ICICI Bank and HDFC Bank, to increase their exposure to the capital market.
The two banks, according to government sources, are within striking distance of the 5 per cent limit on advances set by the Reserve Bank of India.
Finance Minister P Chidambaram had in the Budget for 2004-05 announced that strong banks with sound risk management systems would be allowed to enhance their capital market exposure.
Public sector banks are conservative and have an exposure of less than 3 per cent of their advances in the capital market. So there was no need to review the 5 per cent limit for them, the sources said.
According to the sources, the finance ministry, together with the RBI, will consider raising the particular limit for banks on merit. This will help banks infuse more liquidity into the market.
Private banks are expected to take advantage of the finance minister's announcement given their comfortable funds position.
Figures available with the Business Standard Research Bureau show that banks' capital market exposure as a percentage of their advances on March 31, 2004, ranged between 0 per cent and 3.22 per cent. The total exposure stood at Rs 2,588.50 crore (Rs 25.885 billion).
In 2003-04, a total of 36 banks stepped up advances to the capital market. Net advances to the capital market were up 21.2 per cent in 2003-04, compared with a 15.2 per cent decline in 2002-03.
These 36 banks advanced Rs 1,744.42 crore (Rs 17.444 billion) to the capital market in 2003-04 against Rs 1,374.32 crore (Rs 13.743 billion) in 2002-03.
Among the 36 banks, Bank of India's net advances to the capital market were the highest at Rs 426.89 crore (Rs 4.268 billion) in 2003-04.
ICICI Bank increased its advances to Rs 248.93 crore (Rs 2.489 billion) from Rs 140.02 crore (Rs 1.40 billion). Syndicate Bank recorded a 122 per cent rise in net advances to the capital market to Rs 241.9 crore (Rs 2.419 billion).
The net advances to this sector for IDBI Bank were up 100 per cent and for Canara Bank 62 per cent.
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