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Vivek Law
Mumbai, Oct 28: Even six months after the Reserve Bank of India (RBI) relaxed norms for the banks to loan against dematerialised shares, several banks have remained aloof to the measures. To top it all, several bank branches in southern-India have in fact refused to accept shares in the demat form as collateral towards a loan.
In terms of numbers, the loan against shares portfolio of banks in the demat form has grown from about Rs 50 crore to Rs 110 crore now. This in percentage terms looks good but the numbers are trivial when compared to the immense potential that the loan-against-shares market holds.
Alarm bells are now ringing, as with the compulsory demat trading on the anvil, investors are concerned with the refusal of some banks to accept demat shares. Geojit Securities, a leading depository participant with the National Securities Depository Ltd (NSDL) has organised a workshop for all banks with a presence in Kerala, on November 16, to apprise them of the norms in place. These would include allnew generation private sector banks and the public sector ones as well.
"Forget about pushing for loan against demat shares, several of the bank branches here do not accept demat shares as collateral. The RBI needs to announce that all loan-against-shares business would be only in demat form", said a source at the DP, which has over 5,000 investor accounts.
The RBI had in its slack season credit policy announced in April, 1998, said that banks would be allowed to take a margin of 25 per cent if the shares against which the loans were being provided were in demat form. The margin for physical shares is 50 per cent.
Similarly, the amount of exposure was hiked to Rs 20 lakh in case of demat shares as against Rs 10 lakh for physical shares.
The move according to RBI, was prompted by the fact that in a demat environment there is no risk of a bank being saddled with bad paper and hence lending against demat shares should be encouraged. "The portfolio of loan against demat shares has risen but is notanywhere near the potential that it holds. This is primarily because the message does not seem to have percolated down to the branch level. Many of them are unaware of the benefits of the system despite the acknowledgement of the same by none other than RBI", said NSDL chief CB Bhave.
The RBI governor, Bimal Jalan, is learnt to be inclined to give a push to banks to loan against demat shares as this is the only manner in which the true potential of this facility can be realised.
The risks involved with paper have dissuaded banks from lending against shares and they have been forced to put in place stringent guidelines. The biggest risk was of the shares being deposited as collateral, turning out to be bad paper when lodged with a company for transfer. The procedures involved for getting the corporate benefits on the shares were also cumbersome. These were last year relaxed in case of demat shares.
The NSDL has already got in place a pledge module which facilitate easy lending against shares by banks.
Copyright © 1998 Indian Express Newspapers (Bombay) Ltd.
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