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RBI steps in to ease liquidity pressure on Mutual Funds

Announces Rs 50,000 crore Special Liquidity Facility

Posted On: 27 APR 2020 3:26PM by PIB Mumbai

Mumbai, April 27, 2020

To ease liquidity pressures on mutual funds, the Reserve Bank of India has announced a Special Liquidity Facility of ₹50,000 crore for Mutual Funds. Under this facility, the RBI will provide funds to banks at lower rates and banks can avail of funds for exclusively meeting the liquidity requirements of mutual funds.

Under the special liquidity facility scheme effective today, the RBI will conduct repo operations of 90 days tenor at the fixed repo rate. The facility will be on-tap and open-ended, and banks can submit their bids to avail funding on any day from Monday to Friday. The Scheme will be in operation till 11th of May or up to utilization of allocated amount whichever is earlier.

"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 there from," the RBI said in a press statement today. 

The Apex Bank further added that it remains vigilant and will take whatever steps necessary to mitigate the economic impact of Covid-19 and preserve financial stability.

The funds availed under the SLF-MF shall be used by banks exclusively for meeting the liquidity requirements of MFs by extending loans, and by 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.

RBI Press Release

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