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Raghu Mohan & George Cherian
Mumbai, Oct 12: State-run banks' investments in public-sector mutual funds will not be taken into account for calculation of the 5 per cent investment ceiling on equities.
The trigger point for the move, according to industry sources, is the ministry of finance's proposal to pump in close to Rs 10,000 crore through public sector banks in Unit Trust of India's US-64 scheme.
According to Reserve Bank norms, banks are allowed to invest in ordinary shares (including those of state-run undertakings), convertible debentures of corporates and units of mutual funds schemes not exclusively devoted to corporate debt instruments up to 5 per cent of their incremental deposit growth in the previous year.
Investments by banks in US-64 by this definition, therefore, come under the 5 per cent ceiling.
Senior bankers pointed out that investments by banks in public-sector mutual funds will have to be brought out of the 5 per cent cap if the finance ministry wants to go ahead with the proposal. It is not clear, however,at this stage, if the relaxation will cover all public sector mutual funds or be UTI-specific as a one-time exemption.
During 1997-98, banks' aggregate deposits grew by Rs 95,749 crore over 1996-1997, registering a rise of 18.9 per cent. The portion investible under the 5 per cent cap amounts to Rs 4,787 crore. Of this, given that public sector banks accounted for 80 per cent of total deposits, their investible surplus would stand at just Rs 3,830 crore.
According to the RBI annual report for 1997-98, mutual funds--UTI, public sector and private sector--mopped up Rs 3,305 crore in 136 schemes, against a net outflow of Rs 1,981.3 crore through 119 schemes in 1996-97. UTI alone raised Rs 2,119 crore from 79 schemes in 1997-98, against a reverse flow of funds of Rs 3,043 crore via 73 schemes in the preceding fiscal.
State-run banks have already been picking up shares and mutual fund units in the secondary market, though in small amounts. State Bank of India--with an investible amount of Rs 1,000 crore--hasalready invested over Rs 200 crore. Others like Bank of Baroda have invested Rs 250 crore in UTI's US-64 scheme and is weighing the option of deploying a further Rs 100 crore in the scheme.
At the time of making the announcement, the central bank had also allowed banks to extend loans to corporates against shares held by them to enable firms to meet promoters' contribution to the equity of the new companies in anticipation of raising resources, which is covered under the 5 per cent ceiling. "Since this broadens the avenues for investment by banks, the deployable resources in mutual fund units would naturally come down," feel bankers.
Copyright © 1998 Indian Express Newspapers (Bombay) Ltd.
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