MFs on a volcano; using short-term funds for long-term lending

The mutual funds industry is sitting on a volcano as 75-80 per cent of its assets are short-term while it resorts to long-term lending to corporates, creating an asset-liability mismatch.

"This is a dangerous situation," said UTI MF's Chairman U K Sinha highlighting the need to take corrective measures.

Flagging-off the issue, Sinha, however, made it clear that it is not a crisis situation warranting panic, but it is time the regulators looked at the issue.

"I have brought it to the notice of the concerned authorities that it has systemic risks," Sinha told PTI when asked if he had taken up the matter with the government and regulators.

Of the 75-80 per cent of mutual fund assets, which are short-term, Sinha said, a substantial investment came from banks.

Banking money with mutual funds in end-October was Rs 13,000 crore and it jumped up to Rs 90,000 crore by February, he said.

Though banks have long-term money, they are not lending but mutual funds, which have banks' short-term money parked with them, are lending long-term to corporates.