Reserve Bank of India(RBI) has decided to continue the scheme of extending finance by banks to stockbrokers for margin trading until further notice. The apex bank in a notification to all scheduled commerical banks, said the board of each bank should formulate detailed guidelines for extending finance to the stockbrokers within the overall ceiling of five per cent for exposure to capital market.
On September 22, banks were permitted, on an experimental basis, to extend finance to stockbrokers for margin trading, for a period of 60 days (up to November 22, 2001). The guidelines have been reviewed by RBI in consultation with major commercial banks, it said.
RBI said, the banks should formulate the guidelines subject to following parameters like maintaining a minimum margin of 40 per cent on the funds lent for margin trading.
The shares purchased with margin trading should be in dematerialised mode, under pledge to the lending bank. The bank should put in place an appropriate system for monitoring and maintaining the margin of 40 per cent on a regular basis.

The bank's board should prescribe necessary safeguards to ensure that no "nexus" develops between inter-connected stock broking entities/stockbrokers and the bank in respect of margin trading. Margin trading should be spread out by a bank among a reasonable number of stockbrokers and stock broking entities, it added.
The RBI-SEBI technical committee will again review the guidelines in June 2002 in the light of experience. Bureau Report