ISSN (Print) - 0012-9976 | ISSN (Online) - 2349-8846

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MONEY AND BANKING- Baby with Bath-Water

as a major sop to the private sector. Even accepting that the financial institutions' shareholding in companies should be limited to 40 per cent, this need not mean that the institutions should stop incorporating the convertibility clause in their loan agreements. The convertibility clause only gives the institutions the option to convert a part of the loan into equity at a future date of their choice. They therefore have enough time to unload their existing holdings, so that their total holdings remain within the bounds of 40 per cent after conversion. This would, however, depend on the willingness of financial institutions, especially of LIC and ICICI who hold large chunks of good equities, to sell their holdings. In the alternative, institutions should charge higher interest rates on loans to companies in respect of which they cannot exercise conversion rights on account of the new policy.

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