Banks redeem Rs 15,000 cr liquid funds

Banks redeemed Rs 15,000-20,000 crore from liquid funds this week to meet their CRR requirement in view of the first 25 basis points hike that takes effect on Saturday.

"Liquid funds are facing redemption especially from banks to the tune of Rs 15,000-20,000 crore," Ajay Bagga, CEO of Lotus India Mutual said.

On December 8, Reserve Bank of India announced a 50 bps hike in banks' cash reserve ratio to 5.50 per cent, to be undertaken in two stages on December 23 and January 6.

K Ramkumar, head-fixed income at SBI Mutual said, "Liquid funds have faced redemption as banks have redeemed largely for maintaining CRR."

Some redemption in liquid funds is also because banks and companies do not wish to disclose mutual fund investments in their books ahead of the third quarter earnings.

A fund official at a bank-sponsored fund said, "Banks would have redeemed Rs 20,000 crore since the beginning of this week for arranging funds for CRR." Fund officials said liquid funds were already sitting on cash so as to meet the redemption.

Liquid funds were already hit last week as corporate redeemed to make arrangements for third quarter advance tax payment, due on December 15.

Industry officials opine that corporate redeemed investments of Rs 15,000 crore.

Companies generally park their surplus cash in liquid funds, as they do not charge entry or exit loads and at the same time offer attractive returns.

For year to Thursday, liquid funds gave 6.26 per cent average return.

In November, assets under management of liquid funds across the industry rose 15 per cent to Rs 1.224 trillion, led by net inflows of Rs 16,445 crore.