Quantitative cap on MF investments needed: Union Bank

Union Bank of India had restricted investments into mutual funds (MFs) but has not yet exited them, and was in favour of quantitative restrictions on investments by banks, said Executive Director S Raman today.

“The returns are less than 5 per cent, which is not great. I believe the Reserve Bank of India (RBI) should employ some quantitative restriction on banks’ investments in mutual funds,” he told in an interview today.

Referring to banks’ investments in MFs, which, in turn, are lent to corporates, Raman said, credit offtake figures were being distorted by this circuitous lending.

RBI had expressed concerns about banks’ investments in MFs and bank credit being routed to companies.

It is estimated that banks have been investing over Rs 1 lakh crore into MF schemes due to the liquidity overhang.