Clarification on temporary surplus parking by co-operative banks in mutual funds

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This discussion clarifies the Reserve Bank of India's (RBI) investment norms for co-operative banks concerning temporary surplus parking in mutual funds. While banks can invest up to 10% of NDTL in non-SLR instruments like mutual funds, the practice of frequently redeeming and reinvesting to stay under the limit only at reporting dates is not compliant. The RBI considers this limit on an outstanding, continuous basis to manage risk, and such actions could lead to regulatory issues.

Omkar Khalipe

Omkar Khalipe (Querist)
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18 August 2025 I am trying to understand RBI’s investment norms for co-operative banks. As per guidelines, co-op banks can invest up to 10% of their NDTL in non-SLR instruments, including mutual funds (mostly debt/liquid). SLR requirement is about 20%.

My doubt is regarding the surplus funds beyond these limits:

Some banks reportedly park their temporary surplus in liquid/overnight mutual funds and then redeem/reinvest frequently (say monthly) so that they remain within the non-SLR reporting cap.

Is this considered compliant practice if the balance sheet at month/quarter end does not show non-SLR above 10%?

Or would RBI treat this as a regulatory breach even if it is temporary?

Are there any circulars/clarifications from RBI on how co-op banks should handle such short-term liquidity parking?

Would appreciate if any expert can clarify the correct interpretation and practical approach.

Dhirajlal Rambhia

Dhirajlal Rambhia (Expert)
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18 August 2025 Parking funds in liquid or overnight mutual funds temporarily, and redeeming to stay under the 10% non-SLR limit at reporting time, does not comply with RBI guidelines. The limit should be observed on a continuous/outstanding basis and not just on the balance sheet closing date. Repeated recourse to such practices could draw regulatory censure and may be flagged in audits or RBI inspections.
Temporary “parking” of surplus funds in liquid or overnight mutual funds for periods within a month and then redeeming or rolling them over so the position on reporting (month or quarter-end) day always stays below the 10% cap—this is not in the true spirit of the RBI’s norms. According to the RBI, the 10% limit is based on the outstanding balance, and the intention is to “contain risks” from over-exposure to non-SLR instruments through robust prudential norms.

Dhirajlal Rambhia

Dhirajlal Rambhia (Expert)
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23 September 2025 Good luck....

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