KARACHI, Feb 20: The exposure of banks and development finance institutions (DFIs) in the stock market crossed Rs50 billion mark at the end of January 2004.

Data released by the State Bank shows that investment of banks and DFIs in listed shares stood at Rs38.7 billion and their exposure in badla financing totalled Rs11.5 billion.

The total exposure of banks and DFIs in the stock market at Rs50.2 billion at end-January 2004 showed an increase of Rs15.8 billion or 31.5 per cent in seven months.

At end-June 2003 their total exposure was around Rs34.4 billion, of which Rs30.1 billion was in the shape of investment in shares and Rs4.3 billion in badla financing.

Stockbrokers say the 31.5 per cent rise in banks/DFIs exposure in the stock market between July/January 2003/2004 does not mean they have made fresh investment.

"Their exposure has increased as the stock market itself has grown," says Karachi Stock Exchange Chairman Mr Arif Habib. KSE 100-share index rose 40 per cent in seven months from 3400 as on June 27, 2003 to 4762 as on January 23, 2004. "So I do not think banks and DFIs have made a net fresh investment in stocks in this period," he said.

But why they have increased their badla financing more rapidly than actual investment in shares? "They did that primarily due to very attractive badla rates," said Mr Habib when reached by Dawn over telephone. Badla rates or the rates at which banks and DFIs undertake carry over transactions are often much higher than the markups they charge on conventional lendings.

"Since the banks lending rates were very low (between July/January 2003/04) banks/DFIs saw an added attraction in the badla financing rates." Whereas banks/DFIs investment in listed shares increased 28.5 per cent to Rs38.7 billion at end-January 2004 from Rs30.1 billion at end-June 2003 their badla financing more than doubled, rising from Rs4.3 billion to Rs11.5 billion.

Stock analysts say this is indicative of the fact that the bull run on the stock market was more speculative in nature in January this year compared to June last year. They say it is always the weak holder or speculator who needs badla financing from banks/DFIs to cover the possible losses on his positions in the stock market. When there are more serious and strong buyers in the market they need lesser amount of badla financing.

Monthly figures for badla financing reinforce this view. Whereas banks/DFIs investment in shares rose only four percent to Rs38.7 billion at end-January 2004 from Rs37.3bn at end-December 2003 their badla financing shot up 21 per cent to Rs11.4 billion from Rs9.4 billion during this period.