RBI Announces Rs 50,000 Crore Special Liquidity Facility for Mutual Funds Post Franklin Templeton Crisis

According to reports, under the special liquidity facility scheme effective today, the RBI will conduct repo operations of 90 days tenor at the fixed repo rate.

RBI

India 2020: The Reserve Bank of India (RBI) is opening a special liquidity facility of up to Rs 50,000 crore to help mutual funds tide over a severe liquidity strain imposed by the coronavirus pandemic and redemption pressures, it said on Monday.

Fund houses in India have struggled to allay investors’ fears of a flood of redemption requests after the prominent Franklin Templeton Mutual Fund said on Thursday it would wind up six credit funds for lack of liquidity.

“The stress is, however, confined to the high-risk debt mutual fund segment at this stage; the larger industry remains liquid,” the RBI said in its statement.

It will conduct repo operations for 90 days’ tenor at the fixed repo rate and the funds will be available on-tap and open-ended, it added.

Banks will need to access the funds from the RBI at the repo window and extend loans to mutual funds, buy outright corporate bonds or commercial papers from them or extend the funds against collateral through a repo.

Exposures under this facility will not be reckoned under the large exposures framework and stand to be classified as “held-to-maturity”, even in excess of the permissible 25% of total investments, the central bank added.

India has reported over 27,000 cases of novel coronavirus while the deaths have crossed the 8—mark.

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