More time for banks to meet norms on loans to MFs

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Mumbai, June 9:: Banks on Monday got three more months for complying with the RBI's direction of treating advances given to equity-oriented mutual funds as the capital market exposure.

"On a review of the matter, it has been decided to extend the transition period to comply with the requirements by another three months, that is, up to September 13," the RBI said in a notification.

Earlier, the banks had been asked to meet this guideline by June 13.

As per SEBI regulations, a MF cannot borrow except to meet liquidity needs for the purpose of repurchase, redemption of units or payment of interest or dividend.

Besides, mutual funds could borrow only 20 per cent of the net asset of the scheme and for duration of six months.

The SEBI guidelines may imply that mutual funds should normally meet their repurchase/redemption commitments from their own resources and resort to borrowing only to meet temporary liquidity needs.

The Reserve Bank similarly gave three more months to banks to treat Irrevocable Payment Commitments to stock exchange on behalf of mutual funds.