Mumbai, Dec 23: SBI Capital Markets Ltd, the merchant banking subsidiary of the State Bank of India (SBI), will run the existing leased assets on its books till 2007 when they mature. It has, however, put a stop to all new leasing business. The country's leading merchant banker has also decided to discontinue its inter-corporate deposit (ICD) business.

An internal SBI Caps circular issued last week said no fresh leasing business would be undertaken by the company, while the existing leased assets in the books of the company would be allowed to continue till they matured. It has directed all its offices to immediately report if any freash lease asset is created after December 9.

The government, on December 9, had notified merchant bankers cannot undertake non-capital market activities like leasing and hire-purchase. The Securities & Exchange Board of India (Sebi) had earlier asked the merchant bankers to stop or hive off their existing fund-based activities into different companies.

The government notification, however, allowed them to continue with the existing leased assets on their books till their maturity.

The amendment to the Sebi (merchant bankers) regulations published in the Gazette of India, says: "Notwithstanding anything contained above, a merchant banker prior to the date of notification of the Securities and Exchange Board of India (merchant bankers) amendment regulation 1997, has entered into a contract in respect of a business other than that of the securities market may, if he so desires, discharge his obligations under such contract."

"The question of hiving off of the leased assets does not arise as the government has allowed us to continue with the existing assets till maturity," sources said. The merchant banking wing of SBI will decide on the fate of its underwriting activities when it seeks renewal of the registration as a category-I merchant banker in 1999 on expiry of the present term. "We will run the existing leased assets down. "The question of hiving off the leased assets does not arise," sources said. The hiving off of the leased assets would have become necessary had the government endorsed the Sebi decision to give two years' time to merchant banks to clear their books of leased assets.

SBI Caps and PNB Capital Markets Ltd, the merchant banking arm of the Punjab National Bank, will be the biggest beneficiaries of the government's decision to allow them to run the leased assets to its full course. Earlier their parent banks had refused to take their subsidiaries' assets onto their books as they stood to gain no tax benefits by taking existing leased assets. As on Mrach 31, 1997, SBI Caps had a total lease and hire-purchase assets worth Rs 131 crore. The stoppage of fresh fund-based activity will deal a blow to the balance sheet of the merchnat banking giant. About 50 per cent of its turnover is contributed by fund-based business, though the company's profits through is only 20 per cent.

Copyright © 1997 Indian Express Newspapers (Bombay) Ltd.