Reserve Bank of India (RBI) has announced a ₹50,000 crore special liquidity facility for mutual funds. The move comes after Franklin Templeton, one of India’s top fund houses, decided to shut six of its debt schemes.
“Heightened volatility in capital markets in reaction to Covid-19 has imposed liquidity strains on mutual funds (MFs).
“RBI remains vigilant and will take whatever steps are necessary to mitigate the economic impact of Covid-19 and preserve financial stability,” said RBI in an official statement.
As per the new plan, RBI shall conduct repo operations of 90 days tenor at the fixed repo rate. Banks can submit their bids to avail funding on any day from Monday to Friday (except holidays).
The scheme is on from today, April 27, 2020, until May 11, 2020, or up to utilisation of the allocated amount, whichever is earlier.
Funds allocated under the scheme shall be accessed by banks exclusively for meeting the liquidity requirements of mutual funds by:
- Extending loans
- 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 mutual funds.
Former finance minister P Chidambaram welcomed this move. He said in a tweet: