Mumbai: Assets under management at Indian mutual funds fell 5.2% in the quarter ended 31 December from the previous three months as the worst cash crunch in 10 years sparked withdrawals from money market funds.
Assets declined to Rs6.8 trillion from Rs7.2 trillion in the quarter ended 30 September, according to the Association of Mutual Funds of India.
They dropped 15%in the December quarter from the same period a year earlier, the data showed.
“The liquidity in the system has been so tight over the last four to five months it’s bound to have an impact on mutual funds’ asset size,” said A. Balasubramanian, who oversees the equivalent of $13 billion as chief executive officer of Birla Sun Life Asset Management Co. in Mumbai.
Indian banks borrowed an average Rs92,300 crore a day from the central bank last quarter, the most since 2000, as they struggled to meet rising demand for loans.
“The funding shortage, coupled with rising deposit rates, prompted investors to withdraw money from money market funds,” Balasubramanian said.
The government raised Rs67,720 crore by auctioning third-generation phone licences in May and Rs38,540 crore by selling Internet permits a month later, draining cash from banks that lent money for buying licences.
State Bank of India, the nation’s largest lender, raised one-year deposit rates by 175 basis points, or 1.75 percentage point, since 30 July to a 20-month high of 7.75%, while Housing Development Finance Corp. added 75 basis points to 7.95%.
The average deposit growth of 15.3% during the period lagged behind a 21.1% increase in lending, according to data from the monetary authority.
Sahara Asset Management Co. and Shinsei Asset Management Pvt. Ltd suffered the biggest drop in money under management with 58% declines from the earlier quarter, the data showed. JPMorgan Asset Management India Pvt. Ltd’s assets fell 38% to Rs5,200 crore, according to the industry body.
Pramerica Asset Managers Pvt. Ltd, the Indian arm of US firm Prudential Financial Inc. which started its Indian operations in May last year, had the biggest gain, with assets swelling 75% to Rs1,100 crore, the data showed.