Banks’ share investments jump unprecedented 26% in fortnight: RBI data

Banks’ share investments jump unprecedented 26% in fortnight: RBI data

Banks increased their investments in shares by an unusual 25.6 percent in the fortnight ended August 13, which experts attributed to likely aggressive participation in initial public offerings and the conversion of debt into equity, among other factors.

The total investment in shares by scheduled commercial banks rose to Rs 1.08 lakh crore on August 13 from Rs 86,233.8 crore in the fortnight ended July 30, according to data from the Reserve Bank of India.

Such an increase is unprecedented. Typically, the level of bank investments in shares is unchanged because such securities are perceived to be highly volatile.

Investments by banks were little changed at Rs 85,967 crore on July 16, the RBI data showed. In the year-ago period, the figure stood at Rs 89,427 crore.

What caused the jump?

While there is no data source to ascertain the reasons for the surge in bank investments in shares, experts who spoke to Moneycontrol cited probable reasons including the spike in the valuation of top-rated companies, participation in initial share sales, and conversion of debt into equity. Banks typically convert debt into equity as part of the debt resolution process.

During the fortnight ended August 13, the Nifty 50 on the National Stock Exchange rose 4.86 per cent.

“This is certainly a jump. There could be many reasons,” said the treasury head at a foreign bank who didn’t want to be identified. “Banks could have lent to people against shares to invest in these IPOs or invested in IPOs themselves. Also, they could have funded people or NBFCs funding the IPOs in the first place or lastly invested in short-term papers issued by NBFCs to exclusively fund their financing of IPOs.”

“Banks are allowed to trade in equities and traders would be taking advantage of the rally,” said a senior treasury official at a public sector bank. “Looks like there is more steam left.”

A senior analyst at a brokerage concurred.

“Banks have participated more aggressively in equity deals of late. This, along with a rise in share prices, would have caused this jump,” said the analyst. Banks’ investments in bonds While there was a spike in banks’ investments in shares, their investments in bonds and debentures remained almost at the same level in the fortnight ended August 13. The outstanding investments in bonds/debentures stood at Rs 5,78,186 crore compared with Rs 5,78,498.2 crore in the previous fortnight.Banks’ investments in commercial paper stood at Rs 84,094 crore, […]

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