The Reserve Bank of India on Monday decided to open a special liquidity facility (SLF-MF) worth Rs 50,000 crore to ease liquidity pressures on Mutual Funds.
Under the SLF-MF, 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 will be available from April 27 till May 11, 2020 or "up to utilisation of the allocated amount, whichever is earlier".
The Reserve Bank further said that it will review the timeline and amount, depending upon market conditions that prevail in future. "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 in a statement.
"The stress is, however, confined to the high-risk debt MF segment at this stage; the larger industry remains liquid."
Last week, Franklin Templeton Mutual Fund shut down six of its funds due to credit issues, triggering panic across the MF industry.
Chidambaram welcomes RBI's announcement
Backing RBI's move, former union minister and senior Congress leader P Chidambaram said, "I welcome the RBI's announcement of a Rs 50,000 crore special liquidity facility for Mutual Funds. I am glad that RBI has taken note of the concerns expressed two days ago and requesting prompt action."