With an aim to ease liquidity pressures on mutual funds (MFs), the Reserve Bank of India (RBI) has decided to open a special liquidity facility for mutual funds (SLF-MF) of Rs 50,000 crore. The central bank also stated that it remains vigilant and will take whatever steps are necessary to mitigate the economic impact of COVID-19 and preserve financial stability.
As per the RBI, 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 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.
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 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.