Banks invest Rs 40,526 cr in MFs in last fortnight

After paring their mutual fund investments in the previous fortnight to meet quarter-end capital requirements, banks pumped in Rs 40,526 crore in these instruments during the fortnight ended July 17, 2009.

According to the latest data by the Reserve Bank of India (RBI), banks’ investment in mutual funds stood at

Rs 1,29,998 crore at the end of July 17, 2009. They had withdrawn Rs 33,075 crore during the earlier fortnight ended July 3.

Generally, banks lower investments in liquid funds or instruments with high risk weights to avoid higher provisions. Banks, which are listed on stock exchanges, need to disclose their capital adequacy ratio at the end of every quarter.

Liquid funds carry a risk weight of 100 while other instruments such as call money markets carry a lower risk.

During the same period last year, when bank credit was growing 25.8, banks’ investment in mutual funds grew marginally by Rs 1,730 crore. Also, liquidity situation was tight. Since September last year, RBI has reduced the cash reserve ratio by 400 basis points and the statutory liquidity ratio by 100 basis points. This led to over Rs 200,000-crore liquid funds with banks.

But with a slump in credit demand, banks have parked Rs 93,217 crore in mutual funds in the financial year so far.