Shares of these companies will be accepted as collateral against loans in the demat form only. Since banks like Bank of America do not have demat facility at present, they do not accept demat shares. With the Securities & Exchange Board of India announcement that about 300 stocks will be brought under compulsory demat by 1999-end, banks are gearing up to accept shares in the demat form alone for loans against them.

"We do not want to be saddled with share certificates when they will be sold in the market only in the demat format after January 4. But we continue to give loans against shares that are not part of the compulsory demat list," a Bank of Americaofficial said.

With effect from January 4, 1999, 12 stocks will be brought under the compulsory demat mode. Another 19 scrips will be added to this list on February, taking the total stock under compulsory demat trading to 32. Sebi has also announced that during the course of 1999, about 300 scrips will be brought under demat trading. All trading in these shares will be allowed only in the demat segment for all classes of investors, including retail investors. Earlier, it was only compulsory for the institutional investors to go in for compulsory demat. The scrips that will come under compulsory depository trading on January 4 are Bank of India, BPCL, BSES, HDFC, ICICI, IDBI, Infosys, IndusInd Bank, L&T, SBI, WIPRO and VSNL. The 19 scrips that come under this list from February 5 include ABB, ACC, Asian Paints, Bajaj Auto, Birla Global Finance, Castrol, Tata Tea, Mahindra & Mahindra, Ranbaxy, NIIT and Thermax among others.

Banks give loans against a few select scrips, not more than 500 scrips out of theover 6,000 listed at the stock exchanges. When the compulsory demat list is expanded to 300 by 1999-end, it covers more than half of the most banks' approved shares for loans. Banks also find it easier to give loans against demat shares to avoid the problem of fake and forged shares. The loanee also finds it better as the extent of loans available against shares is higher in case of demat compared with share certificates. The Reserve Bank of India had some time back allowed banks to extent up to 75 per cent of the value of shares as loans, if the share is in the demat form as opposed to 50 per cent for paper-based share certificates.