RBI does its bit for stability

deliberately done to rescue the bourses from the current turmoil. The decision was made on recommendation by the task force constituted for monitoring developments in the financial markets following Monday’s record stock market crash.

It may be recalled that just a few months ago, in January 2004, RBI had hiked margins against shares to 50 pc from 40 pc. Besides a reduction in margins on loans against shares, the bank also reduced margin lending for initial public offers and issue of guarantees to 40 pc from 50 per cent. Furthermore, the minimum cash margin of 25 pc, within the margin of 50 pc was reduced to 20 pc. RBI’s decision to relax margins comes at a time when lending banks (those involved in lending against securities) pressed sales of shares to reduce their risks in a crashing market.

Called margin call, sales by banks to reduce risk had accentuated the fall.

Meanwhile, domestic funds like LIC had lent support to bourses. The market had tumbled nearly 900 points over the last two trading sessions due to uncertainty about the economic policies of the new Congress-led government.

The RBI on Monday had said that it was ready to provide liquidity to banks for meeting all their payment obligations, including any intra-day requirements.

The apex bank said it was in touch with major settlement banks after the stock market tumbled and asked them to ensure that payments to exchanges were smooth.