According to the president of a private sector mutual fund, the move by RBI is actually a retrograde step in the sense that mutual funds earn higher returns compared to bank deposits and other instruments as they are able to take part in the over-night money markets giving them higher yield, which would be hampered if mutual funds are disallowed in the call market.

The reason given by RBI that non-banks induce volatiltity in the call money market was taken with a pinch of salt by all fund managers. They said that it is actually the other way around.

"Non-bank organisations like mutual funds and corporates are actually lenders in the call money markets and banks are the borrowers. If the non-banks are debarred from participation in the said market thenactually the rates will fluctuate too much with very few lenders around. The rates will actually shoot up as the number of lenders come down and the number of borrowers still the same with the same requirements of short term financing", said the vice-president of a private sector mutual fund.

According to another fund manager, the RBI has actually taken a U-turn in this credit policy. On the contrary RBI had earlier wanted more lenders in the market while it itself is restricting the flow of money into this market, he said.

The vice-president of another private sector mutual fund said that it remains to be seen how RBI is going to implement this policy. "There is actually an internal committee working in the RBI which is looking at making the mutual funds participate in the term lending market as well. So, if this step is actually implemented it would defeat the whole idea," he said.

According to him: "If the structure of the call money market is looked at it can be seen that the lenders in this marketsare non-banks and the borrowers are banks. Now, if lenders are removed from this set up it can be seen that the whole set-up will loose its balance thus making the interest rates go berserk".

While the president of a private sector mutual fund said:"RBI wants these monies to go to banks and other money market instruments instead of call market thus trying to check competition. It will be a retrograde step, instead of giving a push to the mutual fund industry in India. This would affect negatively the returns generated by MMMFs".