NEWS & ADVICE : FIXED DEPOSITS
RBI advisory to banks seeks detailed investment norm
By Neelima Shankar
Nov 20, 2009
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The Reserve bank of India (RBI) advisory to banks for putting a cap on their mutual fund exposure has urged the banks to frame a detailed investment norm.

A few public banks had these norms even before RBI's caution at the post-monetary policy meeting with bankers but most of them did not have detailed norms which they are trying to put in place now.

As part of the norms, most banks are reducing their exposure in a single fund house. Similarly they are also putting a check on investment in just one scheme.

Amidst low demand for capital, banks are parking their funds with Mutual Funds. Banks exposure in Mutual funds increased to Rs 1,54,000 crore on October 23, 2009 from Rs. 14,700 crore towards the end of October.

This prompted the apex bank to caution the lenders as they had a bad experience with Mutual funds coming under pressure due to collapse of investment giant, lehman brothers in September 2008.

According to some bankers, RBI officials have informally asked the banks to limit their exposure in Mutual funds.

A senior bank executive said, "We are not lending more than 20 per cent of our total investment to the mutual fund sector. In addition, there is a cap on single-company exposure, depending on the asset under management."

Another executive from a Mumbai based bank said that the bank takes an exposure of Rs 200-300 crore if the asset under management is Rs. 10,000 crore.

The apex bank has also directed the banks to disclose commissions that it received from insurers and mutual funds.

 


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