Move Follows A Jump in Banks’ MF Investments in Nov Even After RBI’s Concerns
THE RESERVE BANK Of India (RBI) has sought details from banks on action taken to curtail investments in mutual funds, said three senior treasure heads, requesting anonymity.
Early this week, RBI wrote to all commercial banks quizzing them about their exposure to mutual funds and the steps taken to reduce such exposure. It may be recalled that after presenting the half-yearly credit policy in October, RBI governor D Subbarao had expressed concern over banks parking surplus money in mutual funds. The concern is largely because over 90% of the money parked by banks in mutual funds comes back to banking systems in the form of borrowings (made by banks) from the overnight market.
Terming this as ‘circular trading’ RBI had asked banks to set an internal limit on their exposure to mutual funds.
In its later letter to banks, RBI has also advised them to set an internal limit approved by the board and asked for exposure details in mutual funds for the March-september 2009 period and the latest exposure.
“It can be called as some sort of moral suasion for banks to refrain from investing in mutual funds,” pointed out a treasury head.
ET had reported in October 2009 that RBI has asked banks to improve their corporate governance norms regarding investments in mutual funds, which followed by a decision that banks will impose an internal limit. During the meeting with bank CEOs, the RBI governor had indicated that the regulators would refrain from fixing an upper limit for banks’ investment in mutual funds, because it might lead to micro management. The mutual fund industry sees banks as valuable customers since they make up almost on-thirds of their total fixed income assets.
Several banks have fixed a sublimit to the total investment portifolio which is in the range of 5-20% of their investment portfolio. However, the concern emerges from the recent data released by RBI shows that even after discouraging banks from investing in mutual funds, the overall investments by the banking sector in mutual funds have increased in N ovember.
According to the latest RBI data, banks’ investments in MF schemes rose Rs.4,173 crore to Rs.1,64,656 crore during the fortningh ended November 20. Banks claim that investment in mutual funds is largely due to lower demand for credit.
THE RESERVE BANK Of India (RBI) has sought details from banks on action taken to curtail investments in mutual funds, said three senior treasure heads, requesting anonymity.
Early this week, RBI wrote to all commercial banks quizzing them about their exposure to mutual funds and the steps taken to reduce such exposure. It may be recalled that after presenting the half-yearly credit policy in October, RBI governor D Subbarao had expressed concern over banks parking surplus money in mutual funds. The concern is largely because over 90% of the money parked by banks in mutual funds comes back to banking systems in the form of borrowings (made by banks) from the overnight market.
Terming this as ‘circular trading’ RBI had asked banks to set an internal limit on their exposure to mutual funds.
In its later letter to banks, RBI has also advised them to set an internal limit approved by the board and asked for exposure details in mutual funds for the March-september 2009 period and the latest exposure.
“It can be called as some sort of moral suasion for banks to refrain from investing in mutual funds,” pointed out a treasury head.
ET had reported in October 2009 that RBI has asked banks to improve their corporate governance norms regarding investments in mutual funds, which followed by a decision that banks will impose an internal limit. During the meeting with bank CEOs, the RBI governor had indicated that the regulators would refrain from fixing an upper limit for banks’ investment in mutual funds, because it might lead to micro management. The mutual fund industry sees banks as valuable customers since they make up almost on-thirds of their total fixed income assets.
Several banks have fixed a sublimit to the total investment portifolio which is in the range of 5-20% of their investment portfolio. However, the concern emerges from the recent data released by RBI shows that even after discouraging banks from investing in mutual funds, the overall investments by the banking sector in mutual funds have increased in N ovember.
According to the latest RBI data, banks’ investments in MF schemes rose Rs.4,173 crore to Rs.1,64,656 crore during the fortningh ended November 20. Banks claim that investment in mutual funds is largely due to lower demand for credit.
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