JOIN US “Funding provided by mutual funds (MFs) can be volatile (as) the bulk of bank CDs has a maturity of three months or less,” Prime Minister’s Economic Advisory Council Chairman C Rangarajan said in valedictory address at the annual bankers meeting here.
The former Reserve Bank governor pointed out that “mutual funds are major buyers of bank CDs and they hold more than 60 per cent of the amount outstanding.” The problem of volatility arises, he added, because these CDs are of short-term duration.
Therefore, “this will be an area which will need to be watched”. Rangaragan also warned banks against increasing exposure to the real estate and infrastructure, as it will lengthen the maturity of bank assets and lead to liquidity risk.
“While the economic recovery will contain the deterioration in NPAs, credit risk remains a major risk in the banking system,” he warned.
Making a strong case for more new bank licences, amidst the call for more and deeper consolidation in the banking system, the noted economist said, “entry of new banks is part of the process of maintaining a competitive system.
Consolidation can happen even as new entrants make their appearance.”