RBI may announce ceiling on banks’ exposure to commodity futures

The RBI could also come out with relevant operational guidelines once Parliament approves the Banking Laws Amendment Bill introduced in the Lok Sabha on Monday, a senior finance ministry official said.

Referring to the enabling clause in the Bill for letting banks to trade in commodity futures, the official said it is meant to help banks and farmers, adding the provision was also in line with global practices. The department of financial services has been in talks with the RBI on the guidelines needed in this regard, including the cap on exposure, sources said.

The enabling provision seeks to amend Section 8 of the Banking Regulation Act, 1949, which prohibits banking companies from directly or indirectly dealing in the buying or selling or bartering of goods, except in connection with the realisation of security given to or held by it and in connection with bills of exchange received for collection or negotiation.

The prohibition is despite the Forward Contract (Regulation) Act, 1952, which permits all entities to take part in commodity futures trading. However, banks are permitted to trade in currencies, bonds and shares and can even hold shares in commodity exchanges.

Official sources said the RBI was earlier apprehensive about banks entering the commodities market, given the wild price fluctuations of commodities and the inexperience of the banks about

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