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April 27, 2000

CREDIT POLICY 2000
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Need to give capital markets a boost, says RBI

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MONETARY
AND CREDIT
POLICY 2000

The Reserve Bank of India, or RBI, admitted that some grey areas, in its earlier guidelines for bank advances against shares, units, debentures and bonds, would have to be rectified to support the development of the capital markets.

There is a need for removal of ambiguities so that policy of banks for supporting the development of capital market is transparent and known to all concerned, including investors, said the RBI's Monetary and Credit Policy.

"It is proposed to refer the matter to the standing technical committee on co-ordination between the RBI and the Securities and Exchange Board of India, or SEBI, in order to develop the operating guidelines for bank financing of equities," the statement said.

The committee will review the status and make suitable recommendations, after appropriate consultations with banks and market participants.

The committee will consider, inter alia, the desirability of having an aggregate exposure ceiling for advances against security of shares as well as issues relating to fixing prudent level of margins on all advances (advances to individuals, corporates, brokers and others) against shares and initial public offerings, or IPOs.

A transparent and stable system of banking financing, which can be sustained during periods of 'ups' and 'downs' in equity prices, would contribute to healthy developments of financial markets, while at the same time minimising risk for banks, the Credit Policy statement added.

UNI

ALSO SEE

RBI Governor Bimal Jalan's policy statement

RBI's Credit and Monetary Policy 2000-2001

RBI's Credit and Monetary Policy 1999-2000

RBI's Credit and Monetary Policy 1998-1999

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