Banks urge RBI for the use of equity derivatives

Mumbai, March 23 | Updated: Mar 24 2006, 05:30am hrs
Getting ready or the forthcoming credit policy, money market players plan to put forth a proposal to the Reserve Bank of India (RBI) to allow banks to use equity derivatives, to enable them to hedge their exposure into equities. Taking opportunity of the booming capital markets, banks have increased their exposure into equities. However, currently, banks are not allowed to use equity derivatives. Use of equity derivatives is expected to help the banks in prudently managing the risks attached to investment in equities.

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Use of equity derivatives is expected to help the banks in prudently managing the risks attached to investment in equities
Bankers also propose to raise the export credit refinance limit from 15% to 25% of their outstanding export credit
Bankers also propose to raise the export credit refinance limit from 15% to 25% of their outstanding export credit. A rise in the refinance levels is expected to enable banks to extend export credit at a cheaper rate. Fixed Income Money Markets and Derivatives Association (Fimmda) plans to make a presentation to the apex bank to increase the export refinancing limit.

Explaining the same, Fimmdas chief executive officer CES Azariah said, Given the rising level of exports in the country and increasing demand for export credit, a rise in export refinance limit would be very beneficial for the banks.

Further, Fimmda also plans to propose the RBI to introduce a window for buying of illiquid government securities. A significant portion of the banks investment in gilts remain untraded and have been shifted to the held to maturity category. However, with RBI intervening and buying these illiquid securities at regular intervals is expected to prove to be an alternative to infuse liquidity in the system, given the acute crunch of liquidity in the system.