The Reserve Bank of India (RBI) has made it clear that the limit of loan given to any person for purchasing shares and other eligible securities will be Rs 1 crore in the entire banking system. Whereas the loan limit for purchasing shares through IPO, follow-on offer or ESOP has been fixed at Rs 25 lakh per person. Earlier this limit was Rs 20 lakh, which has been increased to Rs 1 crore.
Loans against shares, loans taken for IPO funding and ESOPs are often used to earn profits in a short period of time. In such a situation, the limit fixed for the entire system prohibits taking excessive loans during times of market boom. This prevents sudden excessive risk taking, which can increase losses if the market falls.
Experts believe that these limits applicable to the entire system will also reduce the risks of banks. This will reduce the possibility of a single person getting multiple loans from multiple banks, thereby avoiding huge losses in case of a market downturn. Apart from this, RBI has said that if a loan is given to a subsidiary company or a special purpose company (SPV) to buy a company, then the bank will have to take a guarantee from the main company for that loan.
Rules will be applicable from July 1
All these changes are part of the new rules related to investment in the capital market. RBI has extended the date of implementation of these rules from April 1 to July 1, so that banks and people associated with the market can get more time to prepare. RBI has also made it clear that now merger has also been included in the rules related to buying a company. Also, such loans will be given only in those cases where control over a non-financial company is being acquired.
On Monday, on the demand of the industry, RBI extended the date of implementation of these rules by three months. Earlier these rules were to come into effect from April 1. The purpose of these changes is to make it easier to get loans from banks for the acquisition of companies, to clarify the rules for loans against shares and to bring strictness on the loans given to institutions related to the capital market.
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