Between them, state-run banks have a potential corpus of Rs 17,606 crore to invest in the capital market, but lack of expertise and pressure on the capital adequacy front are being cited as reasons for banks shying away from doing so.

Says ASK Raymond James' banking analyst Hemindra Hazari: "Banks don't have the expertise to cope with the risks associated with the capital market... So it is unlikely that they will invest in shares and debentures in a huge amount. Most of the public sector banks were even reluctant to invest under the previous five per cent of incremental deposits norm". Notes Credit Analysis and Research Ltd's (Care) chief economist, Mohan Nagraj: "Banks are not likely to fulfil this five per cent norm. State-run banks with their low-capital base are not fully competent to achieve this target. Capital market investments carry a higher risk than general investments." While a few like Andhra Bank chief officer (funds & investment cell) B Rajkumar are of the view that "the bank would like to grab the opportunity with both hands. Our investment opportunity will be increased manifold by this recommendation. As of now, Andhra Bank's investment in shares is only about Rs 50 crore out its total Rs 7,000 crore investmentportfolio."

Care's Mr Nagaraj observes: "The outdated and poor professional approach of these banks are the major operational constraints to invest in capital market. The public sector banks are predominantly risk-averters. The habit to pursue risky investments has not built up yet." "The outlook of the management is the foremost thing - as to how they feel the market or how they feel about the viability of their investments," he added.

Says eMecklai's Chetan Negandhi: "Banks should build up a body of competent officials who can manage capital market investments efficiently.

Public-sector banks will have to compete with foreign banks. The RBI has done the groundwork for the banks to earn a higher returns by increasing the opportunity to invest in the capital market. It is now the time for the banks to excel."

Despite the RBI efforts, Mr Nagaraj points to the drop in investments made by banks in mutual funds - to a meagre Rs 171 crore from Rs 1,773 crore, last year. This was mentioned in the RBI's just announced monetary and credit policy review for the second-half of the ongoing fiscal. Others like IDBI Bank dealer, Gautam Kapoor are of the view that while the higher ceiling for capital markets exposure "will create immense potential for banks to invest in equities, however, insufficient leverage is a deterrent to do that." Says IDBI Bank's Mr Kapoor: "Banks who has just begun their investment in shares and debentures should have an large investible asset to follow this five per cent norm. Five per cent of outstanding credit is a much larger figure than five per cent of incremental deposits.