Increase in equity investment of banks by more than 25%

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Increase in the attraction of banks towards equity market


MUMBAI: Banks' investment in the country's equity markets is also on the rise, according to Reserve Bank of India data. In the fortnight ended August 15, banks' investments in equities rose 2.50 per cent to Rs 1.08 lakh crore. At the end of the fortnight of July 30, the investment figure was Rs 4.50 crore.

In addition to initial public offerings (IPOs) and conversion of debt into equities, other factors contributed to the increase in banks' equity investments, RBI sources said.

This increase in banks' investment in equities is unprecedented. As equity investments are generally volatile, banks' investments are limited and do not increase significantly in the long run, an analyst said.

At the end of the July 15 fortnight, the country's scheduled commercial banks had invested Rs 3 crore, up from Rs 3 crore a year ago, according to RBI data.

Although the exact reason for the massive increase in the share of banks is not known, analysts attribute this to the increase in banks' investment in IPOs, conversion of debt into equities and increase in valuation of companies with good rankings.

For the fortnight ended August 15, the Nifty 30 index was up 2.4 per cent. Banks are allowed to trade in equities. Banks' investment in equities has increased, but their investment in bonds and debentures has remained almost the same as in the August 15 fortnight.

Investments in bonds and debentures stood at Rs 2,3,8.50 crore at the end of the fortnight of July 30, compared to a modest decline of Rs 2,8,17 crore in the fortnight of August 15, according to RBI data.

In a circular issued in 2016, the Reserve Bank of India (RBI) has tightened the norms for banks to invest in the capital market.

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