RBI cuts capital charge on banks' investments in debt MF schemes

RBI has reduced the capital charge for investing in such schemes

The Reserve Bank of India (RBI) on Thursday eased the capital charge that banks were required to maintain when investing in debt mutual funds (MFs). Banking officials and MF players say this could lead to improved allocations from banks into such schemes and reduce quarter-end churning by banks.

“Every quarter end, banks would either lighten their investments in debt MF schemes or refrain from such investments. The capital consumption for investing in debt MFs was ten-times the requirement on directly investing in bonds,” said the treasury head of a bank. Capital charge is the capital that banks are required to set