Mumbai: To mitigate the economic impact of Covid-19 and preserve financial stability the Reserve Bank of India (RBI) on Monday announced to have opened a special liquidity window of Rs 50,000 crore to ease pressure on mutual funds.
The liquidity strains have intensified amid redemption pressures related to the closure of some debt MFs and potential contagious effects. The stress was, however, confined to the high-risk debt MF segment at this stage; the larger industry remained liquid, RBI said in a statement.
The facility comes days after Franklin Templeton decided to wind-down six credit schemes, locking in nearly Rs 30,000 crore in investor funds.
The special facility will channel Rs 50,000 crore in liquidity towards mutual funds, should they choose to use it. Similar windows were opened in 2008 and 2013, where credit markets were under stress.
The Reserve Bank of India has opened a special 90-day liquidity facility for mutual funds which are facing redemption pressure.
Announcing the window, the RBI said the liquidity stress was limited to high-risk debt funds and the larger industry remained liquid. Under the scheme, the RBI will conduct repo operations of 90-day tenor at the fixed rate repo.
Funds availed under this facility will be used by banks exclusively for meeting the liquidity requirements of MFs by extending loans, and undertaking the 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.
The scheme is available from today i e, April 27, 2020, till May 11, 2020, or up to utilisation of the allocated amount, whichever is earlier.
The RBI will review the timeline and amount, depending upon market conditions, it added.