Mumbai, April 27: Bank of Baroda has decided to aggressively invest in the secondary market for equities in 1998-99. The bank will become an active investor, both through Unit Trust of India as well as on its own in the depository segment of the stock exchanges, sources said. This is likely to see other public sector banks to join the fray as well.Bank of Baroda will be the first public sector bank to make secondary market investments in equities after the Reserve Bank of India allowed banks to do so in last year's credit policy. The bank had tried its hand in secondary market investments last year for a brief period, but withdrew immediately due to the severe bad delivery problem plaguing the market.
BoB's investment last year was routed through UTI as it did not have the expertise to invest in stock markets. However, this year the bank will be taking most of the investment decisions on its own.
On a rough estimate, based on provisional figures of 1997-98, BoB will have about Rs 250 crore forinvestment in secondary markets. This figure could go up if the RBI decides to increase the limit in the forthcoming credit policy. The bank was reported to have had an incremental deposit of Rs 5,700 crore in 1997-98, taking its total domestic deposits to Rs 33,500 crore. Most of its investments will be made in shares available in the paperless form. At present, the depository option is available in about 176 scrips, with compulsory depository trading prescribed for institutions and banks in 30 scrips from June.
BoB's decision follows the increased trading volumes and large number of scrips available for trading in the National Securities Depository Ltd (NSDL). A large incidence of bad delivery was one of the main reasons the bank stayed away from secondary market investments last year. In the depository mode, the problem of bad delivery is totally eliminated.
Banks are allowed to invest up to five per cent of their incremental deposits in the secondary market. Banks' exposure to bridge finance againstfuture public issues and primary market investments also comes within this overall five per cent ceiling on exposures in equity.
A proposal to segregate bridge loan exposures from the five per cent ceiling is lying with the RBI. Some of the bankers are hopeful that the central bank may announce the segregation of bridge loan exposure from the ceiling on equity investments in its forthcoming credit policy announcement. They are also expecting the apex bank to raise the present five per cent cap on secondary market exposure.
Copyright © 1998 Indian Express Newspapers (Bombay) Ltd.
