Urban co-operative banks (UCBs) will not be permitted to invest in units of mutual funds other than debt mutual fund and money market mutual funds, says a notification from the Reserve Bank of India dated 18 September 2007. The central bank has further asked the UCBs to disinvest their existing holdings in any other such units (other than the ones mentioned above), including that in Unit Trust of India.
The RBI had earlier notified that the urban co-operative banks should not invest in mutual fund units of any fund house other than that of UTI, but with this recent notification, it is clear that the banks can now invest in debt and money market mutual funds of any fund house, including UTI. This notification makes it clear that UCBs cannot invest in equity or any other such units of any fund house. UCBs are permitted to invest in certain instruments, within an overall ceiling of 10% of their deposits as on 31 March 2006 of the previous year. These banks will also not be permitted fresh investments in shares of all India financial institutions.
The investments will be limited to 'A' or equivalent rated Commercial Papers, debentures and bonds that are redeemable in nature. Investments in perpetual debt instruments will, however, not be permitted, the notification added. The fresh investments under Non-SLR category will have to be classified under Held for Trading (HFT) / Available for Sale (AFS) categories only and marked to market as applicable to these categories of investments.
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