RBI’s Mutual Fund scheme does not interest Banks

Author: Avijit Bajpai

Sensex touching a new low every passing day has sent Mutual Fund investors to queue up for getting their amounts redeemed. This has added to the already troubled surroundings of the Banks. To ease out the situation, RBI came up with the introduction of a new scheme to assist Banks in handling this. According to this, Banks can have the required amount out of the Central Bank’s pool of 20,000 Cr.

However, perhaps not many see this as a lucrative opportunity. This is proved by the number of bids the apex bank received, a pitiful ‘four’ and that too for 3,500 Cr only. RBI then stretched the time period to benefit from this facility up to the instance of amount getting exhausted. But even this move was also not much welcomed, as only one bid for 200Cr came in the next day.
	As per this scheme, needy banks can borrow for 14 days at interest rate of 9% and lend it at a rate of 10-11%. In addition to the not so attractive interest rates, the major flaw seen is the very short duration for which borrowing is permitted. After the period of two weeks is over, banks will have to fund the redemptions on their own and MFs returning the amount in two weeks in quite impossible.