RBI Introduced Rs 50000 Crore Special Liquidity for Mutual Funds

“With a view to easing liquidity pressures on MFs, it has been decided to open a special liquidity facility (SLF) for mutual funds of ` 50,000 crore,” the RBI said in a release.

RBI Introduced Rs 50000 Crore Special Liquidity for Mutual Funds

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With a view to ease liquidity pressures on Mutual Funds, the Reserve Bank of India (RBI) has decided to open a special liquidity facility for mutual funds of Rs 50,000 crore.

The RBI said it will conduct repo operations of 90 days tenor at the fixed repo rate.

“With a view to easing liquidity pressures on MFs, it has been decided to open a special liquidity facility (SLF) for mutual funds of ` 50,000 crore,” the RBI said in a release.

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 i.e., 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.

Funds availed under the SLF-MF 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.

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. 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, the RBI added.

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