RBI will be backing with Rs. 50,000 crore liquidity support to mutual funds. The RBI will manage repo operations of 90 days gist at the fixed repo rate, under the special liquidity facility scheme effective today.
The sudden decision of Franklin Mutual Fund to close six of its debt mutual fund scheme has raised concerns about likely redemption pressures in the debt mutual fund space, and the depth of debt market to handle such a large-scale redemption.
“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 stress is, however, confined to the high-risk debt MF segment at this stage; the larger industry remains liquid,” said RBI.
Under the SLF-MF, the RBI 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 scheme is available from today, that is, April 27. It will be available until May 11 or up to utilization of the allocated amount, whichever is earlier. The Reserve Bank will review the timeline and amount, depending upon market conditions.