Comment: Milind Barve

'A move towards better ALM for fund houses'

Milind Barve
AMFI Chairman and HDFC Mutual Fund MD

The primary objective of the Reserve bank of India (RBI) in the policy has been to moderate inflation and anchor inflation expectations, while sustaining growth in the medium term.

The goal of monetary policy last year was to nurture economic recovery, while trying to contain food inflation from spreading to generalised inflation. However, since a high inflationary environment is not conducive for sustained high economic growth, this year the stance seems to have shifted clearly towards softening inflation, even if it impacts growth in the short term. With this in view, RBI increased the repo rate by 50 basis points to 7.25 per cent

Factoring its anti-inflationary monetary stance, RBI projected gross domestic product growth of around 8 per cent.

RBI has for long been concerned about banks' investment in liquid schemes of mutual funds. It has finally proposed a cap for liquid schemes at 10 per cent of the previous year’s networth. In the short run, the move could result in a fall in assets under management of the liquid schemes, while in the long run, this is likely to result in lower volatility in assets under management and consequently, better returns for investors. The move is indeed welcome, as it addresses the issue of the potential development of systemic risk and supports a better the asset liability management environment for fund houses.