Banks to withdraw surplus investments from MFs

By SiliconIndia   |   Friday, June 26, 2009   |    3 Comments
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Bangalore: In a move at conserving money that they would have set aside to invest in Mutual Funds (MF), banks have started withdrawing surplus investments in MFs. Though, these withdrawals usually happen at the end of every quarter to ease liquidity, bankers feel that this time the net amount could be significant as the total investments now is over Rs 1 lakh crore, reports The Economic Times. Over the last three months, due to the absence of credit growth, banks have been investing surplus amounts in MFs. According to Reserve Bank of India (RBI), investments in MFs has risen from Rs 36,781 crore in March 27 to Rs 1,22,297 crore as of June 5. Investments made in MFs carry 100 percent risk weightage, which means that for every Rs 100 crore, a bank has invested in MFs it has to set aside a minimum amount of Rs 9 crore as capital. Banks, which have to declare capital adequacy ratio (CRAR) as part of their quarterly results, prefer the amount of capital set aside to be lower in the interests of maintaining profitability.At the end of each quarter, a bank calculates its CRAR - the amount of capital it has to set aside against every rupee lent or invested. Although RBI has pegged the CRAR at nine percent, most banks prefer to maintain it at 12 percent at least.
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