RBI announces Rs 50,000 crore special liquidity facility for mutual funds

RBI announced Rs 50,000-crore liquidity support for mutual funds on Monday.Under the special liquidity facility scheme, the RBI will conduct repo operations of 90 days tenor at the fixed repo rate.

RBI’s announcement comes after the sudden decision of Franklin Mutual Fund to close its six credit fund schemes.

RBI said, “Heightened volatility in capital markets in reaction to Covid-19 has imposed liquidity strains on mutual funds, which have intensified in the wake of redemption pressures related to closure of some debt mutual funds and potential contagious effects therefrom”

“The funds availed under the Special Liquidity Facility have to be used by banks exclusively for meeting the liquidity requirements of Mutual funds by either extending loans and/or undertaking outright purchase of repos against the collateral of investment grade corporate bonds, commercial papers, debentures and certificates of Deposits held by mutual funds”, it added

The scheme has been made available from Monday, April 27, 2020 till May 11, 2020 or up to utilization of the allocated amount, whichever is earlier. The Reserve Bank will review the timeline and amount, depending upon market conditions.