RBI announces ₹50,000 crore special liquidity facility for mutual funds
The Reserve Bank of India (RBI) on Monday announced a special liquidity facility of ₹50,000 crore for mutual funds (SLF-MF), in a move to ease the iquidity pressures on mutual funds amid coronavirus crisis. The RBI shall conduct repo operations of 90 days tenor at the fixed repo rate under the SLF-MF.
The RBI reiterated that it "remains vigilant and will take whatever steps are necessary to mitigate the economic impact of COVID-19 and preserve financial stability."
"With a view to easing liquidity pressures on Mutual Funds, it has been decided to open a special liquidity facility for mutual funds of Rs 50,000 crores. RBI shall conduct repo operations of 90 days tenor at the fixed repo rate," Reserve Bank of India (RBI) said in a statement.
Liquidity support availed under the SLF-MF would be eligible to be classified as held to maturity (HTM) even in excess of 25 percent of total investment permitted to be included in the HTM portfolio, RBI said.
The RBI's liquidity facility for mutual funds will be effective from today till May 11, 2020 or up to utilization of the allocated amount, whichever is earlier. 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).
"Heightened volatility in capital markets in reaction to COVID-19 has imposed liquidity strains on mutual funds (MFs), which have intensified in the wake of redemption pressures related to closure of some debt MFs and potential contagious effects therefrom," the RBI said.
The RBI however said that stress is confined to the high-risk debt mutual fund segment at this stage.
The Reserve Bank will review the timeline and amount, depending upon market conditions.
