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RBI announces special liquidity facility for mutual funds - (27 Apr 2020)

Banking

In order to ease liquidity pressures on mutual funds (MFs), RBI decides to open a special liquidity facility for mutual funds of ₹ 50,000 crore. Due to coronavirus lockdown, there is heightened volatility in capital markets imposing liquidity strains on mutual funds (MFs). The RBI has stated that, it remains vigilant and will take whatever steps are necessary to mitigate the economic impact of COVID-19 pandemic and preserve financial stability. The stress is, however, confined to the high-risk debt MF segment at this stage; the larger industry remains liquid. The decision is in wake of requests received from banks.

Funds availed under the special liquidity facility for mutual funds (SLF-MF scheme) shall be used by banks exclusively for meeting the liquidity requirements of MFs by (1) extending loans, and (2) undertaking 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. The scheme is available from 27th 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.

Liquidity support availed under the SLF-MF would be eligible to be classified as held to maturity (HTM) even in excess of 25 per cent of total investment permitted to be included in the HTM portfolio. As per the RBI statement, 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) for the purpose of determining priority sector targets/sub-targets. Support extended to MFs under the SLF-MF shall be exempted from banks’ capital market exposure limits.

Tags : LIQUIDITY FACILITY   MUTUAL FUNDS   ANNOUNCEMENT  

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