RBI reduces margins on loans against shares

By Our Banking Bureau | 19 May 2004

1

Mumbai: The Reserve Bank of India yesterday reduced the margins for bank financing against shares from 50 per cent to 40 per cent with immediate effect. The decision to reduce margins follows the recommendations of the Task Force constituted by RBI for monitoring developments in the financial markets.

The decision is a consequence of the crash in stock prices since last week. Several brokers had been facing financial problems and reduction in margins is likely to give some relief to them.

In a statement RBI said, "Based on the recommendations, the RBI had decided to restore the status quo ante on margins that banks have to maintain for financing against shares, IPOs and issue of guarantees."

It said the minimum cash margin of 25 per cent (within the margin of 50 per cent) stands reduced to 20 per cent. The central bank had increased the margin from 40 per cent to 50 per cent in January 2004 in order to cool down the rising stock market.

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