Monday, November 29, 1999

Higher capital proposed for market intermediaries

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Capital requirements of market intermediaries are set to rise if regulator Securities and Exchange Board of India (SEBI) accepts the proposals of the Committee on Review of Eligibility (CORE) norms. This is likely to face some resistance as many intermediaries are now functioning with a small — or even nil — capital base while handling business running into hundreds of crores of rupees.The Sebi panel has proposed that it's desirable that "capital adequacy" in relation to the volume of business done should be stipulated for all types of intermediaries. Capital adequacy will consist of minimum capital required and risk capital. In addition to the minimum capital required, additional capital requirement (risk capital) may be prescribed for each type of intermediary depending upon whether the intermediary performs agency type of business or otherwise. "Though the four sub-committees proposed different proposals, all of them agreed about tightening the requirements," said a panel member. One of the sub-groups said SEBI should consider permitting Tier I capital and Tier II capital structure where Tier I consists of equity and Tier II consist of long-term borrowings if the market expresses difficulty in raising the required capital in equity form.

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