As demand for credit picked up and growth in deposits fell, banks’ exposure to mutual funds fell by Rs 21,957 crore, or 17.5 per cent, during the fortnight ended December 18, 2009. According to data by the Reserve Bank of India (RBI), banks’ investment in mutual funds stood at Rs 1,47,279 crore at the end of December 18, 2009. During the fortnight, deposits fell by Rs 21,874 crore. Banks either parks surplus funds in mutual funds or invest in government securities.
Since there was a dip in the deposits mobilised by banks, they withdrew money from mutual funds.
During the fortnight ended December 18, bank credit grew by Rs 21,593 crore, while deposits dropped by Rs 21,873 crore.
“Banks have reduced rates to discourage excess deposits. So, to meet the demand for credit, they have withdrawn money from mutual funds,” said a senior bank executive. At present, most banks are offering 6-6.5 per cent on a one-year deposit, the lowest in recent times.
Generally, banks withdraw from mutual funds at the end of the quarter to meet capital adequacy norms as mutual fund instruments carry a higher risk weight than other instruments. Bank executives said they would start reducing exposure to the funds from the last week of the quarter.