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Banks' Exposure to Commodity Markets Margin Requirements

Banks issue guarantees on behalf of share and stock brokers in favour of stock exchanges in lieu of margin requirements as per stock exchange regulations.

While issuing such guarantees banks are required to obtain a minimum margin of 50 percent. A minimum cash margin of 25 percent (within the above margin of 50 percent) need to be maintained in respect of such guarantees issued by banks.

Reserve bank of India has clarified in a notification dated 9th January, 2007 that the above minimum margin of 50 percent and minimum cash margin requirement of 25 percent (within the margin of 50 percent) will also apply to guarantees issued by banks on behalf of commodity brokers in favour of the national level commodity exchanges, viz., National Commodity & Derivatives Exchange (NCDEX), Multi Commodity Exchange of India Limited (MCX) and National Multi-Commodity Exchange of India Limited (NMCEIL), in lieu of margin requirements as per the commodity exchange regulations.

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