RBI again seeks details regarding MF exposure of banks
By Neelima Shankar
Dec 31, 2009
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According to treasury officials at various banks, the regulator, RBI, has for the second time in a fortnight sought details from banks about their investments in mutual funds.

The central bank has again expressed concern over banks' huge exposure in mutual funds. This stems from the fact that despite RBI's caution in its mid term policy review, investments in such instruments have increased. This number rose by Rs 8,753 crore to Rs 1,69,236 crore in the month that ended on December 4, data from RBI show.

In the recent note, RBI has asked banks to disclose their data on average, lowest and peak level exposure to mutual funds at different points of time. It particularly sought data about their quarterly exposures since March 2009 and the exposure in quarter (September-December).

RBI has also sought data on certificate of deposits (CD) issued by banks that are directly subscribed by mutual funds. CDs are money market instruments sold by banks to raise short term capital. This money is often routed back to mutual funds through investments in liquid funds.

The regulator has also questioned specific details about the money lent by mutual funds to banks through repo or Collateralised Borrowing and Lending Obligations (CBLO). These are markets where money is lent and borrowed on an overnight basis.

In mid-December, the RBI had officially asked banks about their total exposure in mutual funds schemes and the steps that they have adopted to put a check on this figure.

In a meeting with the RBI, bank CEOs had assured the bank that they will set an internal limit on such investments. It is estimated that banks constitute around 34 percent made in the liquid mutual fund scheme.


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