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Insurance, MFs run risk from banks: RBI

Banks which has large borrowings from insurance and MFs of the financial system may have significant implications for the entire system

June 29, 2012 12:04 IST | India Infoline News Service
Insurance and mutual funds run the risk of contagion from the banking sector, said the Reserve Bank of India.

“The random failure of a bank which has large borrowings from the insurance and mutual funds segments of the financial system may have significant implications for the entire system,” according to the RBI’s Financial Stability Report released in Mumbai on 28th June.

Banks increased reliance on borrowed funds, especially short-term funds, due to disproportionate slowdown in deposit growth (at less than 14% as at March-end 2012) vis-à-vis credit growth (16.3%). This could translate into rollover and liquidity risks for banks.

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