Banks may be restricted to advance in Mutual funds by the Government
The Reserve Bank of India (RBI) may possibly order banks to limit their exposure in mutual funds and also prescribe norms for such investments, in order to tighten exposure and deploying funds indirectly in sectors or companies to which banks cannot lend directly due to exposure limits.
Asset Under management (AUM) of the industry, banking stocks has been holding 14.17 per cent of the total equity assets at the end of October. Also, bank certificates of deposit (CDs) accounted for 35.23 per cent of the total debt AUM of the industry.
RBI governor, Mr. D Subbarao has cautioned banks to limit excessive exposure to mutual funds. Some banks have followed the instructions and have set internal limits on such investments.
But expectations are there that such restrictions may affect the returns of the banks as banks would have to park greater funds through RBI's reverse repo window, which offers lower returns.
Banks' investments with Mutual Funds has increased by Rs 4,173 crore to Rs 1,64,656 crore during the fortnight ended November 20.
RBI hasn't been opposing the activity of banks to park funds in the asset management companies, but is worried about the circular movement of funds from banks to mutual funds and back to banks.
