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RBI flags MFs' borrowing play; bank lines are in excess of Rs 1 trillion

The MF regulations mention that schemes are currently allowed to borrow up to 20 per cent of their net assets to meet temporary liquidity needs

RBI flags MFs' borrowing play; bank lines are in excess of Rs 1 trillion
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Jash KriplaniSachin P Mampatta Mumbai
The central bank’s periodic Financial Stability Report has highlighted issues with the way mutual funds use banks as a liquidity stop-gap and suggested that the practice requires greater supervision.
 
Mutual fund regulations allow schemes to borrow money to meet temporary liquidity needs. The data suggest that this provision is perhaps being used as an indirect form of insurance, says the Reserve Bank of India’s (RBI’s) Financial Stability Report. Essentially, the provision allows mutual funds to load up on high-yield papers (which are often illiquid), and bet on banks bailing them out if liquidity issues emerge later, noted the report.

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First Published: Jun 29 2018 | 12:57 AM IST

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