Banks' MF exposure comes down

Banks’ exposure to mutual funds (MFs) fell around Rs 11,000 crore in the fortnight ended February 26, as lenders strove to meet year-end disbursal targets, aided by a rise in demand for credit.

According to the Reserve Bank of India (RBI) data, banks’ MF investments stood at Rs 1,09,453 crore at the end of February 26. Banks have maintained over Rs 1 lakh crore in MFs in the current quarter.

This is despite RBI expressing concerns about banks’ high exposure to MFs. RBI has asked banks to set limits for MF investments. On Friday, the government said RBI was reviewing the steps taken by banks to cut exposure to debt schemes of MFs. “At present, RBI is reviewing the measures initiated by banks in this regard and analysing movement of funds between banks and MFs,” Minister of State for Finance Namo Narain Meena said in the Lok Sabha. He said most banks had placed board approval limits on exposure to MFs.

Banks’ MF investments have risen significantly in the last few years. These are classified as capital market exposure and so cannot exceed 40 per cent of a bank’s net worth. Assets managed by MFs stood at Rs 767,000 crore at the end of February 28, of which debt schemes accounted for two-thirds. Banks account for a sizeable chunk of this figure. Banks park the surplus left after meeting the demand for credit in mutual funds, the call money market and RBI’s reverse repo window.

RBI Governor D Subbarao had advised banks against investing heavily in MFs during the half-yearly review of the monetary policy. Banks typically withdraw funds from MFs at the end of every quarter to meet capital adequacy requirements. MF investments carry a high risk weight of 150 per cent.