• Investment World
• eWorld
• Brand Line
• Mentor
• Life
• Brand Quest
• The New Manager
• BL Club
• Smartbuy

Stocks

• Quotes
• SE Diary
• Scoreboard
• Open-End Mutual Fund

Cross Currency

• Rates
  
  

Shipping

• Ports
  
  

Archives

• Yesterday
• Datewise
• Resources
• In Focus
• In Depth
• Events 2007

Group Sites

• The Hindu
• The Hindu ePaper
• Business Line
• Business Line ePaper
• Sportstar
• Frontline
• The Hindu eBooks
• The Hindu Images

‘Proactive move’: (From left) Mr M.V. Nair, Chairman, Union Bank of India; Dr K. Ramakrishnan, Chief Executive, Indian Banks Association; and Mr M.D. Mallya, Chairman, Bank of Baroda, addressing a press conference in Mumbai on Sunday.

Our Bureau

Mumbai, Nov. 2 Banks have worked out a system to provide “hassle-free” credit to mutual funds facing redemption pressure.

Indian Banks Association (IBA), the apex body of banks in India, has opened a facilitation counter to enable mutual funds to borrow from banks under the Reserve Bank of India’s liquidity support scheme for MFs.

The IBA will help mutual funds to locate banks which have “headroom” under the RBI scheme, as each bank has a lending limit (depending on the size of its deposits), said Dr K. Ramakrishnan, Chief Executive of IBA.

The IBA will collect data on the position of its members on a daily basis so that it will know which bank has funds to lend under the scheme, he said. Banks will also be “considerate” on interest rates to be charged, he said at a hurriedly called press conference on Sunday.

Though it is for the individual banks to decide on the interest rates, Mr M.D. Mallya, Chairman, Bank of Baroda, who is also an IBA managing committee member, said banks should be able to lend at 11-12 per cent interest.

The announcement of the IBA initiative, ahead of the scheduled meeting of bankers with the Finance Minister on Tuesday, is seen as a “proactive’ move by banks to support MFs.

The RBI had also enhanced the liquidity support on Saturday as part of a host of measures to inject more funds into the system. Mr M.V. Nair, Chairman, Union Bank of India, said with the RBI enhancing the limit, IBA is trying to facilitate MFs to take advantage of it.

The IBA move follows representations made by the Association of Mutual Funds in India (AMFI) alleging that its members were finding it difficult to access funds. Mr Ramakrishnan said IBA had a meeting with the representatives of Association of Mutual Funds in India on Friday.

Mr A. P. Kurian, Chairman of AMFI, welcoming the IBA move, said “The new facility to help MFs is a joint effort by both the IBA and AMFI.”

On October 14, the RBI had announced a Rs 20,000 crore short-term fund facility at 9 per cent interest for banks (since increased to Rs 60,000 crore on Saturday) exclusively for on-lending to MFs.

So far, banks have borrowed Rs 8,500 crore as the response from mutual funds was said to be “lukewarm ”.

However, mutual funds have been facing difficulties in obtaining funds as some banks reportedly were charging rates as high as 14 per cent. There were also instances of banks denying funds to MFs.

On the fund facility provided to non-banking finance companies , bankers said they would be happy to extend credit to finance companies, but the ‘rigour of credit discipline” would be adhered to.

More Stories on : Banking | Mutual Funds | Credit Market

Article E-Mail :: Comment :: Syndication :: Printer Friendly Page

Copyright © 2008, The Hindu Business Line. Republication or redissemination of the contents of this screen are expressly prohibited without the written consent of The Hindu Business Line