MUMBAI, March 16: The Reserve Bank of India is planning to allow banks to fund takeovers. The central bank is also favourably inclined to permit badla-financing by banks and forward cover on foreign institutional investors' (FIIs) exposure in equity market.The package of measures, likely to be announced in the slack season credit policy next month, will go a long way in giving a big push to the sagging capital market.
The issues came up for discussion at a meeting of select bankers with RBI deputy-governor SP Talwar on Monday. This is the first-ever meeting convened by the country's central bank for the revival of capital markets. Last year the finance ministry formed a working group under the chairmanship of chief economic advisor to the ministry Shankar Acharya on the captial markets' revival.
Monday's meeting was attended by RBI executive director V Subrahmanyam and other senior central bank officials and SEBI executive director (secondary market) MD Patil. Among senior bankers in the public sector,chairmen of Bank of India, Bank of Baroda, Central Bank, Punjab National Bank, Canara Bank, Indian Overseas Bank were present at the meeting. Besides, Indian Banks' Association chairman A T Pannir Selvam, chairmen of two old private banks - Vysya Bank and United Western Bank - and CEOs of four foreign banks - Stanchart, CitiBank, Hongkong & Shanghai Banking Corporation and ANZ Grindlays Bank - attended the meeting. According to sources, bankers have made "path-breaking" suggestions for the revival of the capital markets.
RBI nod likely on takeover funds
The list of suggestions includes:
Retailing of mututal funds units through bank counters
Two-way arbitrating between local and GDR markets.
Change in accounting norms for banks' investments in shares
Offering new incentives to corporates for tapping the capital markets
Allowing takeover funding and badla financing
Reduction in stamp duty
Allowing forward covers on FIIs' equity exposures
"Wehave made it clear to the RBI that banks cannot play the role of agents of growth in the capital market. When the country's economy is in a bad shape and corporate performance is not very encouraging, we can do nothing to bring back investors' confidence," a senior banker who attended the meeting said.According to RBI sources, the central bank is open to most of the suggestions. "All the suggestions made by the bankers cannot be implemented by the RBI as they do not fall under the central bank's jurisdiction. We are open to ideas and will certainly accept those which will boost the market sentiment," the source said.
The RBI last year allowed banks to take the plunge in secondary market trading. However, no bank has had taken any substantial exposure in secondary market trading.
"If the RBI wants to revive the capital market, it must allow banks to arbitrage between local and the GDR markets. Till now only the FIIs have been taking advantage of the arbitraging between the GDR and local markets. Fullarbitraging will not be possible unless we opt for capital account convertibility. For the time being, the central bank can put a cap on 10 per cent for such arbitraging," said another banker.
Bankers also sought changes in accounting morms for investments in shares. "Gain in investments in shares should be shown as capital appreciation," said one source.
Copyright © 1998 Indian Express Newspapers (Bombay) Ltd.
