With loan demand turning slack after a brief spike in June, following the demand
from telecom companies to pay licence fees for various spectrum in June, banks
have again started parking funds in mutual funds.
In July, they have parked over Rs 16,000 crore in various mutual fund schemes. Data released by RBI indicate that total outstanding funds parked with mutual funds amounted to Rs 35,779 crore as on July 30 against Rs 19,106 crore as on July 2. Though official data for trend in August is not available in public domain, fund managers say there have been some inflows since mid-July after they pulled out huge amounts in June. Banks essentially park funds in liquid MF schemes as the return is a shade better than the return earned by deploying funds in the overnight call money market.
According to M Narendra, executive director of Bank of India, there may be very few banks with temporary surplus funds who are parking small amounts with MFs. However, now there are options available to them like investments in commercial papers and certificate of deposits of other banks as many banks have mobilised long-term bulk deposits.
Hence, even if they have surplus funds, banks may not invest in MFs the way they did in the earlier part of the year. Moreover, credit offtake is expected to pick up in the busy season starting October, he added. Another deterrent for banks is the new RBI diktat which states that NAV-based gains are now treated as capital gains.
Even MF s are having a similar view. “Investments by banks are only a trickle of what it was in May and before that,” said a fund manager with a debt fund, requesting anonymity. Moreover, with liquidity conditions becoming tight, not many banks are having surplus funds to park with MFs he added.
The RBI data indicates that the central bank has been lending over Rs 10,000 crore daily to banks under its liquidity adjustment facility (LAF), where it lends funds at the repo rate currently fixed at 5.75%. Under this facility, the central bank lends funds to banks against pledging of securities by banks.
It may be recalled that banks lent over Rs 100,000 crore in June, much of it as licence fee by telecos towards payment of licence fees for 3G spectrum, besides another Rs 15,000-20,000 crore towards upcoming auction of the broadband wireless spectrum. Loan growth in subsequent fortnight, however, moderated because of banks with surplus funds have started parking temporary surplus with MFs.
In July, they have parked over Rs 16,000 crore in various mutual fund schemes. Data released by RBI indicate that total outstanding funds parked with mutual funds amounted to Rs 35,779 crore as on July 30 against Rs 19,106 crore as on July 2. Though official data for trend in August is not available in public domain, fund managers say there have been some inflows since mid-July after they pulled out huge amounts in June. Banks essentially park funds in liquid MF schemes as the return is a shade better than the return earned by deploying funds in the overnight call money market.
According to M Narendra, executive director of Bank of India, there may be very few banks with temporary surplus funds who are parking small amounts with MFs. However, now there are options available to them like investments in commercial papers and certificate of deposits of other banks as many banks have mobilised long-term bulk deposits.
Hence, even if they have surplus funds, banks may not invest in MFs the way they did in the earlier part of the year. Moreover, credit offtake is expected to pick up in the busy season starting October, he added. Another deterrent for banks is the new RBI diktat which states that NAV-based gains are now treated as capital gains.
Even MF s are having a similar view. “Investments by banks are only a trickle of what it was in May and before that,” said a fund manager with a debt fund, requesting anonymity. Moreover, with liquidity conditions becoming tight, not many banks are having surplus funds to park with MFs he added.
The RBI data indicates that the central bank has been lending over Rs 10,000 crore daily to banks under its liquidity adjustment facility (LAF), where it lends funds at the repo rate currently fixed at 5.75%. Under this facility, the central bank lends funds to banks against pledging of securities by banks.
It may be recalled that banks lent over Rs 100,000 crore in June, much of it as licence fee by telecos towards payment of licence fees for 3G spectrum, besides another Rs 15,000-20,000 crore towards upcoming auction of the broadband wireless spectrum. Loan growth in subsequent fortnight, however, moderated because of banks with surplus funds have started parking temporary surplus with MFs.
