In the wake of the heightened volatility witnessed in the debt market due to the VOVID-19 outbreak, which has imposed liquidity strains on mutual funds and has led to the closure of some debt MF schemes, the Reserve Bank of India (RBI) on Monday announced a Rs 50,000 crore special liquidity facility for Mutual Funds (SLF-MF).
Under the scheme, the apex bank 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 RBI has stated that it remains vigilant and will take whatever steps are necessary to mitigate the economic impact of COVID-19 and preserve financial stability. To ease liquidity pressures on MFs, it has been decided to open a special liquidity facility for mutual funds of Rs 50, 000 crores,” the apex bank said in a notification on Monday.
The scheme is available from today and will be open till May 11, 2020, or till the complete utilization of the entire Rs 50,000 crore amount, whichever is earlier.
The Reserve Bank will review the timeline and amount, depending upon market conditions.
Funds availed under the SLF-MF scheme shall be used by banks exclusively for meeting the liquidity requirements of MFs by extending loans, 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, RBI said.
Liquidity availed under SLF-MF to be eligible to be classified as HTM
The Central bank further said that the liquidity support availed under the SLF-MF would be eligible to be classified as held to maturity (HTM) even more than 25% 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) to determine 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.
Worth mentioning here is that Franklin Templeton Mutual Fund earlier this month closed down six of its key debt schemes – Low Duration Fund, Ultra Short Bond Fund, Credit Risk Fund, Dynamic Accrual Fund, Short Term Income Plan and Income Opportunities Fund – citing severe illiquidity in the bond markets, and redemption pressure.
(With inputs from timesnownews)