RBI announces Rs 50,000 crore for mutual funds
The RBI says it remains vigilant and will take whatever steps are necessary to mitigate the economic impact of COVID-19
In order to ease liquidity pressures on mutual funds, Reserve Bank of India, the country’s central bank, on Monday announced a special liquidity facility of Rs 50,000 crore for mutual funds.
Last week, mutual fund investors received a major jolt when Franklin Templeton Fund halted withdrawals from as many as six debt mutual fund mutual schemes with large exposures to higher-yielding, lower-rated credit securities, citing lack of liquidity amid the coronavirus pandemic.
The RBI said it remains vigilant and will take whatever steps are necessary to mitigate the economic impact of COVID-19 and preserve financial stability.
Under the SLF-MF, the RBI shall conduct repo operations of 90 days tenor at the fixed repo rate. 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 scheme is available from today i.e., April 27, 2020 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.
Funds availed under the SLF-MF shall be used by banks exclusively for meeting the liquidity requirements of MFs by (1) extending loans, and (2) 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.
Liquidity support availed under the SLF-MF would be eligible to be classified as held to maturity (HTM) even in excess of 25 per cent of total investment permitted to be included in the HTM portfolio. Exposures under this facility will not be reckoned under the Large Exposure Framework (LEF).
The face value of securities acquired under the SLF-MF and kept in the HTM category will not be reckoned for computation of adjusted non-food bank credit (ANBC) for the purpose of determining priority sector targets/sub-targets. Support extended to MFs under the SLF-MF shall be exempted from banks’ capital market exposure limits, the RBI said.