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PSU banks pinch mutual funds

india Updated: Oct 17, 2008 22:57 IST
Sandeep Singh
Sandeep Singh
Hindustan Times
PSU banks pinch mutual funds

Public sector banks (PSBs) are giving more trouble to cash-crunched mutual funds (MFs) by not honouring some credit instruments and charging as high as 16 per cent, despite a special lending window set up by Reserve Bank of India (RBI) this week.

MFs have seen Rs 36,000 crore flow out this month due to liquid fund redemptions by corporate customers, after a drain of Rs. 45,000 crore in September.

The RBI has allowed MFs to borrow against bond-like certificates of deposits (CDs) but state-run banks are not accepting CDs issued by private banks. “If PSBs are practising discrimination on the papers of private and public sector banks, it is unfair,” said AP Kurien, chairman, Association of Mutual funds of India.

PSU banks say they do not have enough government securities to raise funds from RBI in the first place. “So there is a limit on the fund availability,” said Arun Kaul, chief general manager at Punjab National bank, blaming high rates on excess demand. MD Mallya, chairman of Bank of Baroda, said the banks were also limited by exposure quotas in borrowing from each other.