Latest Expert Exchange Queries
sitemapHome | Registration | Job Portal for CA's | Expert Exchange | Currency Converter | Post Matrimonial Ads | Post Property Ads
 
 
News shortcuts: From the Courts | News Headlines | VAT (Value Added Tax) | Service Tax | Sales Tax | Placements & Empanelment | Various Acts & Rules | Latest Circulars | New Forms | Forex | Auditing | Direct Tax | Customs and Excise | ICAI | Corporate Law | Markets | Students | General | Indirect Tax | Mergers and Acquisitions | Continuing Prof. Edu. | Budget Extravaganza | Transfer Pricing
 
 
 
 
Popular Search: articles on VAT and GST in India :: ACCOUNTING STANDARD :: list of goods taxed at 4% :: form 3cd :: TAX RATES - GOODS TAXABLE @ 4% :: ARTICLES ON INPUT TAX CREDIT IN VAT :: TDS :: ACCOUNTING STANDARDS :: cpt :: empanelment :: VAT RATES :: VAT Audit :: Central Excise rule to resale the machines to a new company :: due date for vat payment :: ICAI offer Get Windows 7,Office 2010 in Rs.799 Taxes
 
 
General »
  Withdrawal of Legal Tender Character of the existing Bank Notes in the denominations of ₹ 500/- and ₹ 1000/- (Updated as on November 30, 2016)
 Cases for tax scrutiny will be selected by machines
 Time to revisit 1997 direct tax rates, says P Chidambaram
 Lok Sabha passes Bill to tax black money deposits post demonetisation
 Last day to pay property tax with old notes
 Income tax department asks IDS declarants to pay tax by 30 November
 Why PM Narendra Modi must beware of the breathtaking Arthakranti tax
 Japanese firms seek easing of restrictions on funding in India
 Tax on black money: How the cookie will crumble
 Income tax officials say raids on jewellers based on 'credible intelligence' proving fruitful
 Exchange window being misused, government forced to reduce limit to Rs 2000, says Arun Jaitley

RBI tells banks to cut liquid mutual funds exposure
May, 16th 2011

The flow of money from banks into liquid schemes could be lower than what asset management companies have estimated, if a rule capping lenders' investments in this mutual fund product becomes effective later in 2011. The Reserve Bank of India (RBI) has advised banks, specifically ones which own mutual funds, to keep investments in liquid funds "well below" the new limit of 10% of their networth after October, said two people familiar with the matter.

This will force banks to focus more on raising funds through individual fixed deposits and mutual funds to turn to retail clients to build assets under management. Banks have been accused of sharing a cosy relationship with mutual funds to meet their money requirement. Capital markets regulator Securities and Exchange Board of India has repeatedly pushed mutual funds to build a business based on retail portfolios rather than institutional money.

An RBI official is said to have conveyed the central bank's thinking to top bank executives soon after it announced this investment restriction in its monetary policy review on May 3. Though the RBI did not specify the extent to which banks need to bring down their investments in liquid schemes, executives are interpreting the unofficial "limit" as 5-6% of lenders' networth, said a banker familiar with the matter, requesting anonymity.

"It would be ideal that they (banks) maintain their holding within the 10% mark or level," said a source. The RBI is said to have also told bank officials to cut exposure to liquid schemes in a phased manner over the next five months rather than redeem the entire amount just before the new limit comes to effect.

An email query to RBI on this matter did not elicit a response.

The revised investment limit will be based on the banking industry's total networth on March 31, 2011.

The mutual fund industry estimates banks' total networth on this date between Rs 3 lakh crore and Rs 4 lakh crore.

At 10% of the networth, banks' money flow into liquid schemes will be capped at Rs 30,000-40,000 crore after October. Currently, banks' investments in liquid schemes is about Rs 90,000 crore, fund managers said.

If banks decide to cap the investments in liquid schemes at 5% of their networth, the mutual fund industry may end up getting only about Rs 15,000-20,000 crore. Total assets under management was Rs 7.85 lakh crore on April 30.

"The message is very clear. RBI wants banks to keep exposure to liquid schemes to the minimum and wants to break the comfortable dependence that banks and mutual funds enjoyed," said a top mutual fund industry official, aware of the development.

Banks park their surplus money in liquid schemes, which invest in debt securities of duration less than a year, including certificates of deposits issued by banks, commercial papers from companies, treasury bills and the collateralised lending and borrowing obligation (CBLO) market, for quick returns. These funds, in turn, lend to banks in the overnight CBLO market. Mutual funds are also among the major investors in certificate of deposits.

"Such circular flow of funds between banks and DoMFs (debt-oriented mutual funds) could lead to systemic risk in times of stress/liquidity crunch. Thus, banks could potentially face a large liquidity risk," RBI said in the circular on May 3.

Among top banks in the country, State Bank of India , ICICI Bank , Axis Bank , Canara and Punjab National Bank , among others, have mutual fund subsidiaries.

 
 
Home | About Us | Terms and Conditions | Contact Us
Copyright 2016 CAinINDIA All Right Reserved.
Designed and Developed by Binarysoft Technologies Pvt. Ltd.
Multi-level Marketing MLM India Affiliate Marketing Affiliate Marketing Software MLM Software MLM Solutions Multi level marketing solutions MLM Servi

Transfer Pricing | International Taxation | Business Consulting | Corporate Compliance and Consulting | Assurance and Risk Advisory | Indirect Taxes | Direct Taxes | Transaction Advisory | Regular Compliance and Reporting | Tax Assessments | International Taxation Advisory | Capital Structuring | Withholding tax advisory | Expatriate Tax Reporting | Litigation | Badges | Club Badges | Seals | Military Insignias | Emblems | Family Crest | Software Development India | Software Development Company | SEO Company | Web Application Development | MLM Software | MLM Solutions