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Mutual fund redemptions up to Rs 2 lakh crore can support NBFCs

Mutual fund redemptions amounting to Rs 2 lakh crore by investors following the IL&FS crisis will help in supporting other NBFCs and restrict spillovers into the real economy, a report said Friday.  The report by economists at private sector HDFC Bank said estimates suggest Rs 2 lakh crore have moved from MFs back to banks as investors pulled out of the liquid and fixed income funds that had supported NBFC funding.

 “With this windfall in deposits, banks could use it to buy good quality assets from the NBFCs. This we believe is a more probable scenario and could help ease a lot of liquidity related worries going forward,” it said. It can be noted that over the past few weeks, in a rising interest rates scenario, concerns have been raised about potential asset-liability mismatches at NBFCs who borrow short and lend long. This has led to a liquidity problem and forced policymakers to intervene.

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