By Chiranjivi Chakraborty
India’s central financial institution tightened guidelines for loans taken by companies that undertake proprietary buying and selling in shares and commodities and supply leverage to purchasers, the newest measure aimed toward lowering speculative market exercise within the South Asian nation.
All credit score amenities to securities companies must be backed by collateral, whereas lending for buying and selling on their very own account or investments by brokers will probably be prohibited, in keeping with a press release revealed on the Reserve Financial institution of India’s web site late Friday. The so-called prudential guidelines for capital market intermediaries resembling inventory and commodity brokers will come into impact from April 1, the central financial institution stated.
Proprietary buying and selling companies accounted for greater than 50 per cent of fairness choices turnover on the Nationwide Inventory Alternate of India Ltd. — the nation’s greatest inventory bourse — final yr, in keeping with information. In money equities buying and selling, their share hit a 21-year excessive on the NSE at round 30 per cent.
The newest step comes simply days after India sharply raised transaction tax on buying and selling of single-stock and index derivatives in a bid to cut back speculative buying and selling. Mixed with the central financial institution’s new guidelines, market contributors worry the foundations will harm volumes.
The RBI has additionally requested banks to demand that ensures prolonged by them on behalf of a dealer for proprietary trades to be totally secured, with 50 per cent of collateral being in money and relaxation as money equivalents and authorities securities. The brand new rule will slender the kind of securities buying and selling companies can supply as collateral to banks.
The central financial institution additionally tightened lending guidelines for margin buying and selling facility underneath which inventory brokers supply leverage to their purchasers. Loans given by banks for the product must be totally secured by money and different liquid securities. Shares provided as collateral by brokers will probably be thought-about at a 40 per cent valuation low cost.
Margin buying and selling facility has grown quickly right into a greater than ₹1 trillion ($11 billion) marketplace for inventory brokers, the place purchasers can get leverage of upto 5 occasions their capital.
