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Liquidity has improved, inflows increased this month: AMFI chief

Source: PTI
November 19, 2008 16:45 IST
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An improvement in the liquidity situation is visible as also an increased inflow into mutual funds this month, a top mutual funds industry official said on Wednesday.

"There has been an improvement in liquidity. There is (also) an increased inflow into mutual funds," Association of Mutual Funds in India chairman, A P Kurian, told reporters on the sidelines of a conference in Mumbai.

The recent measures taken by the Reserve Bank to ease the liquidity crunch in the system have helped the mutual funds industry, he said.

"In the month of October, we (the mutual funds industry) faced redemption pressures," Kurian said, adding that thanks to the special repo window provided by the RBI, the situation has now improved.

The apex bank has cut its cash reserve ratio by 3.5 per cent and repo rate by 1.5 per cent since October, thereby considerably easing liquidity pressure in the system.

The concerted efforts by the authorities have helped in bringing down interest rates from nine per cent to 7.5 per cent.

"Consequently, funds are now able to borrow at lower interest rates. Initially, funds were borrowing at 14-18 per cent but now due to intervention by the government, RBI and the Indian Banks Association, most public sector banks are ready to lend money to mutual funds," Kurian said.

Besides, they have also reduced interest rates to 10.5-11 per cent "which is a very welcome development," he said.

The total gross borrowing of mutual funds following the RBI opening special windows to ease liquidity pressure was around Rs 22,000 crore (Rs 220 billion) and most of the funds have repaid, Kurian said.

"At present, only a couple of funds are resorting to borrowing while the rest of the funds are able to manage by selling securities combined with increased inflow into the funds," he said.

Market regulator Securities and Exchange Board of India was looking at what happened in the last two to three months and also keeping an eye on the current situation.

AMFI was working closely with Sebi to prevent the recurrence of market disturbances as witnessed in the recent past, he said.

Asked whether Sebi was scrutinising FMPs and entry or exit aspects, Kurian said, both AMFI and Sebi were working closely on these issues.

However, no decisions have as yet been arrived at. "We have not closed in on anything, we are studying (the issues) and we will make our recommendations to Sebi," he said. 

About market speculation regarding segregation of corporate and retail investment, Kurian said this was 'one option'.

"There are issues and aspects which need to be studied and it is also a concern and we are addressing them," he said.

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