Limit Debt Mutual Funds Investment - RBI To Banks

Source: Wall Street Journal

The Reserve Bank of India has asked banks to put limits on their investment in debt mutual funds, three people familiar with the matter said Thursday, in what may be a move to cap lenders' off-balance-sheet exposure to companies.

In a recent communication to banks, the RBI has asked them to initiate measures to act as "self regulators" on debt fund investments, the three people told Dow Jones Newswires, asking not to be named.

An RBI spokeswoman wasn't immediately available for comments.

The move comes after Governor Duvvuri Subbarao flagged the issue of large investments by banks in debt mutual funds at the October monetary policy review. The central bank has been concerned as mutual funds have been investing bank funds to lend to corporate houses by buying their commercial paper. The RBI feels that banks won't have control over the quality of lending in such cases. Read More...