Few takers for MF support plan

Banks submit four bids for Rs 3,500 crore in RBI's Rs 20,000 crore special repo auction.

There were few takers for the Reserve Bank of India’s special lending facility that was opened this morning to banks to help cash-strapped mutual funds .

The central bank opened a special 14-day repo window of Rs 20,000 crore to enable banks to raise money and lend to the funds, but received only four bids for Rs 3,500 crore. RBI uses the repo route to lend money to banks and enhance liquidity in the system.

Bankers said many lenders have little headroom to tap the special window. Also, the announcement came at short notice for banks to prepare themselves, especially when there is no specific information available on which mutual funds need money, they said. With overnight call rates easing, they also sense an opportunity to raise money at a lower rate in the coming days.

Bankers said they were expecting a 50 basis point reduction in the repo rate. They also expect the central bank to cut, if needed, the statutory liquidity ratio (SLR), or the proportion of capital that needs to be invested in designated securities, from the ad-hoc level of 24 per cent at present.

“The first priority is to lend to my other clients instead of giving money to mutual funds. In any case, RBI has said extending loans to equity-oriented mutual funds will add to my capital market exposure. Why should I do it?” asked a senior public sector bank executive.

Of the Rs 3,500 crore borrowed by banks from RBI through the 14-day repo, Bank of India accessed Rs 1,400 crore. Bank of Baroda and Union Bank of India raised Rs 600-700 crore each, sources said.