Banks withdrew heavily from mutual funds (MFs) in the last fortnight of December. The reason: High credit growth and provisions for liquid funds at the end of the quarter.
According to the Reserve Bank of India (RBI) data, banks withdrew Rs 1,04,851 crore from MFs during the fortnight ended January 1 and their MF investments now stand at Rs 42,428 crore.
Credit offtake grew Rs 79,000 crore during the period while deposits grew Rs 82,769 crore (fastest since January 2008).
Banks either lend their surplus funds or invest in instruments like mutual funds, reverse repo and call money. Since credit demand has revived over the last four fortnights, banks have been reducing their investments in liquid schemes of mutual funds, which fetch returns of close to 4.31 per cent. Call rates are at 2.10-3.35 per cent while the reverse repo rate is 3.25 per cent.