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Priya Nair
Sharvari Patwa

Mumbai, Oct. 19 Though the Reserve Bank of India is providing funds at nine per cent to banks for on-lending to mutual funds, some banks are understood to be demanding as high as 14 to 15 per cent interest from mutual funds.

Under the RBI’s special scheme to help the fund-starved mutual funds, banks can lend money to MFs against the collateral of Certificate of Deposits (CDs). They are also allowed to buy CDs from MFs.

However, some banks, it is alleged, are trying to take advantage of the tight liquidity situation. An official with a mutual fund said though the Indian Banks’ Association (IBA) and the Association of Mutual Funds in India (AMFI) have agreed to an interest rate of 11 per cent for mutual funds to borrow from banks through the liquidity window, banks are asking for higher rates, as they know the mutual funds are in dire straits.

Some banks prefer to buy CDs from MFs rather than lending against them, as loan to MFs includes their overall exposure to the stock market. Moreover, some banks are accepting CDs of only public sector banks, said a mutual fund industry official.

All these issues have made life more difficult for mutual funds, despite the best intention of the central bank, said the official.

Mr A.P. Kurian, Chairman of AMFI, said that four-five mutual funds, including two large fund houses, have already availed themselves of the facility provided by the RBI. A Reliance MF official said it has borrowed Rs 600 crore through the special RBI facility.

Most fund managers agree that redemptions are 20-30 per cent higher than the normal trend.

Corporates have withdrawn their investments in mutual funds to meet their advance tax payments, working capital requirement or to park money elsewhere, said a senior fund manager with a mutual fund having a global presence.

Since the scheme was launched on October 15, banks have so far availed themselves of a total of Rs 6,805 crore from RBI for lending to MFs.

Two leading public sector banks have lent over Rs 3,500 crore to MFs so far, which includes the special repo window, other direct lending and by buying CDs from MFs, said banking officials.

Bankers say that some mutual funds have also become greedy. As they know that RBI is lending to banks at 9 per cent, they are also hoping to get funds at the same rate or even lower.

So, though they need funds, many of them are not borrowing, said a bank official.

In fact, the situation is so bad that a couple of mutual funds are facing closure. These are not big funds; they are relatively new, having been launched less than a year ago, he said.

More Stories on : Mutual Funds | Credit Market | Interest Rates

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