In a bid to ease liquidity pressures on mutual funds (MFs), the Reserve Bank of India on Monday announced Rs. 50,000 crore Special Liquidity Facility (SLF) for mutual funds. The move comes after Franklin Templeton rounded up 6 funds last week.
The RBI stated that the coronavirus lockdown has “heightened volatility in capital markets” and has “imposed liquidity strains on mutual funds (MFs)”. The central bank said that redemption pressures related to closure of some debt mutual funds intensified liquidity strains.
However, the RBI added that the stress at this stage is confined only to the high-risk debt mutual fund segment and “the larger industry remains liquid”.
“The SLF-MF is on-tap and open-ended, and banks can submit their bids to avail funding on any day from Monday to Friday (excluding holidays),” the RBI release read.
Under the scheme, the RBI will conduct repo operations of 90 days tenor at the fixed repo rate.
The scheme is available from today till May 11, 2020 or up to utilization of the allocated amount, whichever is earlier. The Reserve Bank will review the timeline and amount, depending upon market conditions, the RBI statement read.
Funds availed under the SLF-MF shall be used by banks for the following:
– Meeting the liquidity requirements of MFs by extending loans
– Meeting the liquidity requirements of MFs by undertaking outright purchase of and/or repos against the collateral of investment grade corporate bonds, commercial papers (CPs), debentures and certificates of Deposit (CDs) held by MFs.
The RBI said it remains vigilant and will take necessary steps to mitigate the economic impact of Covid-19 and preserve financial stability.