Calcutta, Oct. 14: The Reserve Bank of India’s lifeline to mutual funds may not be enough, and a number of asset management companies may cease to function if the credit crisis persists.

The central bank today decided to inject Rs 20,000 crore through the short-term lending route to help mutual funds meet their liquidity needs and overcome redemption pressure.

According to Dhirendra Kumar, CEO of Delhi-based Value Research, a firm that tracks mutual funds, the measures may not be enough.

“The operationalisation of these measures will also take some time. There is no easy solution to this crisis,” Kumar said.

Many asset management companies (AMCs) may get wiped out if the tight liquidity situation continues for long, he said.

“Many AMCs have a capital base of Rs 10 crore to Rs 20 crore and hence they will not be able to absorb in their balance sheets the cost of borrowings to meet redemption pressure,” Kumar said.

“If they adjust this borrowing cost against the individual scheme’s net asset value, then the NAVs of those schemes will fall more inducing further redemption pressure,” he said.

Joydeep Bhattacharya, chief marketing officer of UTI Asset Management, said, “AMCs will be under pressure from two sides — liquidity and profitability.”

“AMCs, if they take loan from banks, will have to bear the interest cost on their own and they cannot pass it on to investors. It will be difficult for many mutual funds that are not well capitalised to absorb this cost,” he said.

Anil Kumar, CEO of Birla Sun Life Asset Management Company, said mutual funds were finding it very difficult to sell the underlying assets of their fixed maturity plans, liquid and liquid plus schemes.

“These assets are being sold in the secondary market at a price lower than at which these were bought. As a result, the loss is reflected in the declining NAVs of liquid and liquid plus schemes that investors so far considered as safe as bank deposits.”

Till Monday, mutual funds had been net sellers to the tune of Rs 4,456 crore in the secondary debt market during this month.