NEWS & ADVICE : PERSONAL LOAN
RBI extends deadline to meet norms on loans to Mutual funds
By Neelima Shankar
Sep 15, 2008
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Banks have got three more months up till December 13th for complying with the Reserve Bank's direction to include loans to mutual funds and the Irrevocable Payment Commitments (IPCs) to stock exchanges on behalf of MFs and FIIs under the capital market exposure.

Earlier the banks were asked to meet the terms by September 13th. "On a review, it has been decided to extend the transition period to comply with the requirements by another three months, that is, up to December 13," the RBI said in a notification.

This is the second time that RBI is extending the deadline. Prior to this also the central bank had extended the deadline by three months from June to September.

Presently, loans by banks to an individual against units of mutual funds are taken as its exposure to capital markets. But, loans to mutual funds are not counted within banks' overall limit for capital market exposure. Hence the RBI has taken a decision to extend the closing date for banks to meet RBI norms on advances to mutual funds.

The guideline, which is expected to come into effect from December 13, says finance extended by banks to equity-oriented mutual funds would form part of banks' capital market exposure.

Banks also issue Irrevocable Payment Commitments to stock exchange on behalf of MFs and FIIs to facilitate transactions made by their customers.

As per RBI guidelines, MFs receive loans from banks to meet the temporary liquidity requirement of repurchase or redemption units. Within this overall ceiling, the banks' direct investment in shares, convertible bonds, debentures, units of equity- oriented MFs, and all exposures to Venture Capital Funds should not exceed 20 percent of its net worth.

 


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