Page 15 - Banking Finance April 2021

MUTUAL FUND

Mutual Fund

News

Banks may face challenge in overall asset under management stimulate economy marred by the
could affect incremental investment COVID-19 pandemic.
from SEBI's revised debt appetite of AMCs which are closer to G Pradeepkumar, Chief Executive

norms: ICRA 10% of NAV threshold limit for Officer, Union Asset Management
According to ICRA Ratings, banks are investments in these bonds. "As mutual Company, has stated that the issuance
likely to face challenges in their funds are large investors in additional of certificates of deposit by banks has
incremental bond issuances, following tier I (AT-I) and tier II bonds issued by come down considerably in last one
the Securities and Exchange Board of banks, it could possibly make it year as they are flush with funds and
India's revised norms on investment by challenging for the banks to raise their papers issued by few banks are also
mutual funds in Basel III debt desired quantum of debt capital", he coming with lower interest. Debt
instruments issued by banks. further stated in a report. funds, in general, are investing in the
In the recently revised norms, the SEBI papers issued by corporates and
said that mutual funds across all the Mutual funds' exposure to government are the active borrowers
schemes would not own more than bank certificates of in the market.
10% of the Basel III instruments issued deposits declines by 67%
by any bank. The norms also mention Mutual funds failed to
that no more than 10% of Net Asset Mutual funds' investment in bank beat benchmarks in year
Value of the debt component of the certificates of deposits declined sharply by
scheme will be issued in Basel III 67% last month to Rs. 53,000 crore of lockdown: Study
instruments and no more than 5% of against Rs. 1.59 lakh crore in same period A recent study by Morningstar has
last year. It caused largely due to fall in
the NAV of the debt component of the shown that several key categories of
interest rate on this debt instrument.
scheme will be issued in Basel III mutual funds on average failed to beat
instruments of a single issuer. According to Care Rating research their benchmarks in the year of
Additionally, the valuation of perpetual report, the overall mutual funds' debt lockdown.
debt instruments henceforth will be schemes' investment in bank The study looked at the performance
based on a maturity of 100 years from certificates of deposit has fallen to from 25 March, 2020 to 22 March,
date of issuance, instead of current 3.2% in February from 10.4% logged in 2021. In another variant, it looked at
the same period last month.
practice of valuing them on time left returns from 19 February, 2020 which
for the next call-option date. The average rate of interest on CDs was the start of the 2020 COVID
Karthik Srinivasan, ICRA Ratings Group has fallen by 2 percentage points in correction to 22 March, 2021. In the
Head of Financial Sector Ratings, last one year to 4.2% last month second variant as well, mutual funds
remarked that the proposals to limit against 6.2% in February, 2020 with across several categories failed to beat
the composition of the Basel III bonds the excess liquidity unleashed by RBI to their benchmarks.

BANKING FINANCE | APRIL | 2021 | 15