Addressing newsmen here today, Rathi said investments in equities were not only liquid but also offered better returns than any other instrument available in the capital markets. For eliminating market and systemic risks, banks may consider investing initially in Sensex scrips only, which are the most liquid, he added.

As of now, banks are allowed to invest up to 5 per cent of their incremental deposits in listed equities, convertibles and debentures of corporates. But bankers have been wary of putting money into equity for fear of losing money or not being able to generate adequate returns.

If banks were to invest 1 per cent of their deposits into capital markets, at least Rs 7,000-8,000 crore of banks' funds would flow into equity shares, onthe assumption that aggregate bank deposits amount to over Rs 7,00,000 crore. This would provide an adequate cushion to FII investment outflows in periods of crisis, Rathi argued.

Among strategic initiatives taken by the BSE, Rathi informed that the spread between the bid and offer price (the tick size) had been reduced to 5 paise with effect from May 3, 1999. In addition, it was also agreed in principle that the Sebi Demat Committee and other standing committees would include 2 investor representatives.

The BSE chief disclosed that Sebi had also agreed to replace the earlier limit of Rs 25,000 worth of shares, which an investor could deliver in physical form with a quantitative limit of 500 shares as it was more investor-friendly.

The BSE has also submitted its inputs on vanishing companies to the regulator which shows that at least 70 companies are either not traceable or have not been able to match their fund flows satisfactorily. Rathi said the BSE study showed that 20 companies are just nottraceable.

The BSE has also beefed up its investor protection cell and decided to file winding up petitions against defaulting companies on a regular basis. Rathi revealed that BSE had already filed 5 winding up petitions and more would follow.