While most banks have stopped considering the Unit Trust of India's US-64 scheme as a collateral, the public sector State Bank of India (SBI) today said it would continue to advance loans against the face value of the scheme's units.
Liquidity seems to be the primary concern for a majority of banks, particularly, while advancing loans to corporates against US-64.
"A collateral has to be a liquid instrument, and with a freeze on redemption, there is no point in using US-64 as a collateral," said the chairman of a public sector bank.
Bank chiefs also said that borrowers had not approached them with loan proposals using the scheme as a collateral. Of the total collateral provided by corporates while taking advances from banks, the goverment owned mutual fund's flagship scheme formed a considerable chunk in case of small loans. Most of the corporates used it as a money market instrument and redeemed it during April-May.
"There was no hard and fast rule. Depending on a company's investment policy, money was parked in US-64. So, the share of the scheme as a collateral varies," said a bank chief.
SBI said individuals can avail loans of up to 60 per cent of the face value of the units. The maximum loan amount can be up to Rs 20 lakh for units in demat form, it said.
The bank has not made the terms of financing more stringent and loans will be given on the same terms and conditions as applicable to financing against shares and debentures, SBI said in a statement.
