Rediff.com« Back to articlePrint this article

Banks giving cheap loans against MF units

February 25, 2004 11:06 IST

Banks are cashing in on the growing interest of retail investors in mutual funds by offering loans against MF units at rates lower than that on loans against shares.

ICICI Bank offers loans against MF units at 10-12 per cent. The differential depends upon the type of scheme with a higher interest rate charged on equity schemes as opposed to debt schemes.

The first public sector bank to offer loans against MF units will be State Bank of India, which hopes to come out with its product by mid-March.

"We propose to offer the product at an interest rate of 9-10 per cent. This will give greater liquidity to retail investors, allowing them to re-invest the funds into the market," senior SBI officials said.

However, the product is limited to schemes of some funds. In the case of ICICI Bank, it offers loans against MF units on schemes issued by Franklin Templeton MF, HDFC MF and Birla Sun Life MF.

SBI though yet to finalise the list, proposes to offer loan against MF units in the case of schemes issued by Franklin Templeton MF, Morgan Stanley MF and Kotak Mahindra MF, senior SBI executives said.

Loans against MF units fall under the Reserve Bank of India norms on lending against shares, where banks charge a 50 per cent margin and there is a maximum cap of Rs 20 lakh (Rs 2 million) on the loan amount.

Banks' exposure to the capital markets has been restricted by the central bank to 5 per cent of their total advances.

Loans against MF units will also fall under the limits so far as units of equity schemes are concerned, as in the case of loans against shares.

SBI is the only public sector bank to offer the product. Said a senior Bank of Baroda official: "We also intend to launch the product shortly."

Meanwhile, SBI today launched Vishwa Yatra Foreign Travel Card, a joint initiative with Visa.

This card, aimed at the corporate traveller, is a prepaid travel card acceptable at over 13 million merchant locations worldwide, and providing global access to cash at 850,000 Visa ATMs.

SBI has set a target of issuing a minimum of 25,000 cards in one year across the 100 designated branches.

SBI's initiative follows Citibank and UTI Bank, which launched their respective products earlier this fiscal.

Chairman A K Purwar said: "We aim to garner 35 per cent of the annual expenditure on out-bound travel business." Today, SBI has a 35 per cent market share in the foreign exchange market.

Krishnamurthy to take over as SBI Life chief

S Krishnamurthy, deputy managing director at State Bank of India, will take over as the managing director and CEO of SBI Life Insurance Company from R Krishnamurthy, who retires at the end of the month.

S Krishnamurthy, currently the MD & CEO designate, was recently elevated as the DMD of SBI. Prior to his promotion, Krishnamurthy was the chief general manager of SBI's Chennai circle.

Freny Patel, K Ram Kumar and Janaki Krishnan in Mumbai