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RBI unveils Rs 50,000 cr support for MFs
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SME Times News Bureau | 27 Apr, 2020
To ease liquidity pressure on Mutual Funds, the Reserve Bank of India on
Monday decided to open a special liquidity facility (SLF-MF) worth Rs
50,000 crore.
The development comes after Franklin Templeton Mutual Fund shut down six of its funds due to credit issues.
Accordingly,
under the facility, the RBI shall conduct repo operations of 90 days
tenor at the fixed repo rate. The apex bank said that SLF-MF is "on-tap
and open-ended", and banks can submit their bids to avail funding.
Besides, the scheme is available from April 27 till May 11, 2020 or "up
to utilization of the allocated amount, whichever is earlier".
The
Reserve Bank further said that it will review the timeline and amount,
depending upon market conditions. "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," it said in a statement.
"The stress is, however, confined to the high-risk debt MF segment at this stage; the larger industry remains liquid."
As
per the statement, funds availed under the SLF-MF are meant to be used
by banks exclusively for meeting the liquidity requirements of MFs via
extending loans, and undertaking outright purchase of "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 statement added.
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