Banks’ proprietary stock holdings double

MUMBAI: Banks’ proprietary ownership of equities has almost doubled over the past three years, thanks to an RBI directive which allows them to take 51 per cent equity in defaulting firms by converting their debt into equity. They own stocks worth almost Rs 75,000 crore, but have not been able to sell them even in a booming market as valuations may pick up only when the companies show profit.

Commercial banks’ stocks and shares portfolio is worth Rs 74,307 crore until May 18, up 26 per cent over the previous year’s levels, the latest RBI data shows. Proprietary stock purchases by banks are at book value and comprise a part of non-SLR investments, or part of treasury assets of banks.

“A majority of such shares owned by banks are equity conversions under the Reserve Bank’s strategic debt restructuring scheme to address stressed assets, and market purchases could be a very small amount during the period,” said a public sector banker.


The central bank, it may be recalled, had allowed one more option to address the bad loan problem under its ‘Strategic Debt Restructuring Scheme’. “To ensure more ‘skin in the game’ of promoters, JLF/Corporate Debt Restructuring Cell (CDR) may consider the possibility of transferring equity of the company by promoters to the lenders to compensate for their sacrifices,” RBI had said in a notification in June 2015.

Banks’ proprietary stock holding has almost doubled by 93 per cent, from Rs 38,478 crore in June 2015, since the RBI had issued its circular. But the possibility of encashing on this stock portfolio are dim even in a booming market as most stock prices have not risen over their acquisition prices, said analysts. “Once there’s a turnaround in the company concerned and valuations improve, we can sell these shares,” said C Venkat Nageswar, deputy managing director in charge of treasury at State Bank of India.

Besides, there is a lock-inperiod in some cases because of which the bank concerned cannot sell. But there is hope as promoters can buy back shares at a higher price later if there is a turnaround in the firm.

Ever since the regulator allowed banks to convert debt to equity, they have converted loans in a number of firms, including Electrosteel Steels, Ankit Metal and Power, Rohit Ferro-Tech Ltd, IVRCL, Gammon India, Monnet Ispat and Energy, VISA Steel, Lanco Teesta Hydro Power.