Banks get 3 months to meet norm on MFs

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Mumbai, Sep 10 : Banks have got three more months till December 13 for complying with the Reserve Bank’s direction to treat advances given to equity-oriented mutual funds as capital market exposure.

By then, banks would also have to comply with the norms that consider payment commitments made by them to stock exchanges to facilitate transactions by mutual funds within the limit of their capital market exposure.

“On a review, it has been decided to extend the transition period to comply with the requirements by another three months, that is, up to December 13,” the RBI said in a notification. Earlier, the banks had been asked to comply with the guidelines by September 13. At present, loans by banks to an individual against units of mutual funds are taken as his exposure to capital markets. But, loans to mutual funds are not counted within banks’ overall limit for capital market exposure. The guideline, which would be effective from December 13, says finance extended by banks to equity-oriented mutual funds would form part of banks’ capital market exposure.

Banks also issue irrevocable payment commitments to bourses on behalf of mutual funds to facilitate transactions made by their clients.

After December 13, such exposure would also form part of the banks’ capital market exposure, the RBI notification added. The aggregate exposure of a bank to the capital markets in all forms should not exceed 40% of its net worth as on March 31 of the previous year.

Within this overall ceiling, the banks’ direct investment in shares, convertible bonds, debentures, units of equity- oriented MFs, and all exposures to venture capital funds should not exceed 20% of its net worth.