Banks' MF investments under lens

MUMBAI: Even as banks have started redeeming their mutual fund investments to spruce up their balance sheets by March-end, possible losses on their investments in short-term plans (STPs) of MFs has put RBI on alert.
Banks have invested over Rs 8,000 crore in STPs, which, in turn, have invested in not-so-liquid securities of NBFCs. RBI, which had even earlier voiced its apprehensions over these investments, now wants to know whether the banks have incurred losses in redeeming these units.
RBI officials were unavailable for comment on the issue, but a fund manager confided that short-term plans of MFs have been facing severe redemption pressure and that investments made in NBFC securities, in particular, have had to be liquidated at a discount.
"Since these securities are not traded frequently, funds have had to offer these securities at a discount to manage the redemption pressure," he added. This has resulted in lower net asset values for the schemes, though the losses are reportedly not very substantial.
STPs of mutual funds have invested over 10-15 per cent in these partly-liquid securities with an average maturity period of one year. "STPs are designed to be liquid investments and so typically invest in one-year papers issued by NBFCs and corporates," said sources.