Select Banks To Get Investment Limit Waiver For Uti Plans

The Reserve Bank of India has decided to exempt select banks from the five per cent limit on investments for funds parked in Unit Trust of India schemes. Banks presently have to seek specific approval from the apex bank to make investments over the prescribed investment limit in UTI schemes.

Scheduled commercial banks are at present allowed to subscribe to shares and debentures in the primary and secondary market upto five per cent of the incremental deposits of the previous year. This five per cent limit includes shares acquired through devolvement on underwriting commitments and investments in mutual funds. Now, investment in UTI schemes can be made over and above this five per cent limit.

 

The Reserve Bank had also recently changed the base date for calculating the incremental deposits to increase the actual funds flow to investment for a few banks.

The Bank of Baroda has already been granted clearance by the Reserve Bank to invest over and above the five per cent investment limit in UTI schemes, as has Dena Bank. According to K Kannan, chairman and managing director, Bank of Baroda, We have set aside Rs 100 crore to be invested in UTI schemes, of which Rs 51 crore has already been parked in various units. The balance Rs 49 crore will be invested soon.

UTI chairman G P Gupta said many other banks had also evinced an interest in putting money in the Trusts schemes. The Trust is currently in talks with several banks to launch schemes tailored to their needs.

However, not all banks will be able to get an exemption from the five per cent limit. The Reserve Bank is expected to grant the exemption only to strong banks which have adequate risk-taking ability. The proposal to permit banks to invest in UTI schemes was first mooted on the grounds that banks that did not have the expertise to trade in the stock market could park their funds with the Trust, specially since the expertise of most banks lies in debt, rather than equity.

It was also pointed out that the impact on the stock markets would be much greater if the banks pooled their resources through the Trust, rather than investing in trickles individually.