RBI rejects proposal for higher equity exposure

RBI has rejected a proposal to increase the current capital market exposure limit of 40% (of networth) for banks. Recently, Bank of India, IndusInd Bank, Kotak Mahindra Bank and HDFC Bank had proposed a hike in the limit. Among the banks proposing higher equity exposure, HDFC bank has an exposure of 70.6% and had proposed a limit of 55%. In response, RBI has asked the bank to reduce its exposure to 40% limit by April 2008. RBI's decision to maintain status quo on the capital market exposure limit is based on the recent volatility in capital markets coupled with wide spread fears of recession in US following the mortgage turmoil.