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June 20, 2001
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Money > Business Headlines > Report June 20, 2001 |
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NBFCs gung-ho over loans against sharesYashajit Saha Non-banking finance companies are planning to pursue loans against shares business aggressively and fill in the void created by the unwillingness of commercial banks. The banks' exposure to the stock market is capped by the recent Reserve Bank of India guidelines. The central bank, however, did not prescribe any limit for NBFCs and hence left enough scope for them to exploit the business. S K Mitra, managing director, Birla Global Finance Ltd, said: "Lending against share is a prime business of our company. As the security market conditions went bad, we had to reduce the yearly lending (against share) from Rs 1 billion to Rs 150 million. However, we see the opportunity to increase it once again to Rs 1 billion once the market stabilises." Mitra said the restrictions on banks' exposure is favourable for NBFCs. "Though there is no restriction from the regulator, we have internal restrictions while extending credit against shares as it is always a risky business," he said. An official with Infrastructure Leasing and Financial Services also said that the though loan against share is not their prime business activity, they are considering the possibility of increasing the business. Though most of the big NBFCs are planning to go in a bigger way for their loans against share business, NBFCs like Tata Finance, however, declined to go in the same way. Subodh K Shah, managing director, Tata Finance said, "Lending against share has never been our focus. So even if the RBI regulation has created some favourable condition for the NBFCs vis-à-vis banks in the 'lending against share' business, it will not have any impact on activity." The central bank on April 11, capped individual bank's exposure to the market including loans and advances to individuals, corporates and stockbrokers for investment in shares and debentures at 5 per cent of total outstanding advances. The ceiling, however, is not applicable for loans against shares where the end-use is not investment in the market. The apex bank also asked commercial banks, which have exposure of more than 5 per cent to bring down below the stipulated level. Powered by YOU MAY ALSO WANT TO READ:
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