The meeting assumes significance as the central bank is seriously contemplating to come out with measures to regulate the IPO financing activity of banks.

The RBI has already told banks to slowdown funding IPOs as it fears that any bubble-burst in the stock markets may spill-over to the banking system. In its last meeting with senior bankers on this issue held on February 17, the apex bank hinted that it would "review" IPO financing by banks and issuance of guarantees to stock brokers by them.

Presently, banks finance IPOs within their own prudential limits. In the absence of RBI guidelines, some banks are competing against each other in offering cheaper loans to investors.

The apex bank has sounded the alarm bells over some banks, particularly private and foreign ones, going overboard in extending loans for funding initial public offerings.A high-level RBI team visited a foreign bank in the first week of February in this connection. "Some of the banks have over-exposed themselves to the stock market. ``What is more alarming is the fact that a section of the brokers has been leveraging this to fuel the market," said a senior banker under condition of anonymity.

Now, the co-operative banks have entered this arena by tempting investors with lending margins much below the industry norms.

The Saraswat Co-operative Bank has come out with advertisements announcing lending margin as low as 10 per cent. The bank is advancing 90 per cent of the share application amount towards IPO financing. The scheme has a rider of investors having to open saving and demat accounts with the bank.

According to industry sources, the size of the IPO financing market at the retail level is around Rs 2,000-2,500 crore and is stated to be growing at a rapid pace. Investors desirous of seeking IPO funding have to open an account with the lending bank, which maintains a lien over the deposit. "Moreover, the refund order of the IPO subscribed by the investor accrues to the lending bank," says a credit official with a private bank.

The standard lending margin for granting IPO loans by banks is in the range of 25-35 per cent, bankers say.

"In this bull run, many investors have managed to enhance the credit limit offered by banks by investing the IPO finance in the stockmarket and subsequently re-investing the proceeds including capital gains back into the bank deposits after repaying the interest accrued on the original amount," a market observer said.

"They continue doing so to avail of higher limits of finance," he said.Therefore, the borrowers are able to service their loans due to the lending bank and at the same time have a deposit running with the same bank to finance their transactions," he added.