Considered a profitable avenue; scope to expand business

Our Bureau

RBI conditions

The bank

should not acquire the units from the secondary market.

Should not

buy back the units from its customers.

Retailing

of the units may be confined to select branches

Mumbai, May 17

The Reserve Bank has allowed regional rural banks (RRBs) to act as agents for marketing mutual fund units.

Apart from expanding the scope of business of RRBs, marketing of the MF units is considered a profitable avenue for banks.

As per an RBI notification, RRBs may enter into agreements with mutual funds for marketing the units subject to conditions.

It has been stipulated that the banks should act only as an agent of the customers, forwarding their applications for purchase or sale of the units to the mutual fund or Registrar or transfer agents. The purchase of the units would be at the risk of the customers and without the bank guaranteeing any assured return.

The bank should not acquire the units from the secondary market. Also, it should not buy back the units from its customers.

The bank holding custody of MF units on behalf of its customers should ensure that its own investments and the investments belonging to its customers are kept distinct from each other. And, retailing of the units may be confined to select branches so as to ensure better control.

RBI has also advised the RRBs to comply with the existing "know-your-customer" and "Anti-Money-Laundering" guidelines in respect of the applicants for the MF units.

They should also work out adequate and effective control mechanisms in consultation with their sponsor banks.

(This article was published in the Business Line print edition dated May 18, 2006)
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