RBI to pump in Rs20,000 cr to help MFs meet redemption needs

RBI to pump in Rs20,000 cr to help MFs meet redemption needs
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First Published: Tue, Oct 14 2008. 12 14 PM IST
Updated: Tue, Oct 14 2008. 12 14 PM IST
PTI
Mumbai: The Reserve Bank today decided to inject Rs20,000 crore through short-term lending route to help the mutual funds meet their liquidity needs and overcome redemption pressure.
“RBI has decided to conduct a special 14-day repo at 9% per annum for Rs20,000 crore today with a view to enabling banks to meet the liquidity requirement of mutual funds,” the central bank said in a release.
The decision will help the mutual fund industry to meet redemption pressure following the credit crisis in the financial sector.
Meanwhile, Finance Minister P Chidambaram while welcoming the decision by RBI said it was taken in view of the liquidity stress being faced by some mutual funds.
The mutual fund industry informed Chidambaram that they would provide certificates of deposits as collateral for borrowings from banks.
Some mutual funds faced stress on liquidity due to redemption in debt instruments and money market instruments, the minister said that this was brought to the government’s notice only last night and welcomed RBI’s swift action to address it.
The decision was taken after SEBI Chairman C B Bhave and RBI Deputy Governors met this morning that was followed by a meeting involving key players in the asset management industry.
The mutual fund industry witnessed nearly 3% drop in its assets under management in September.
The combined average assets under management (AUM) of the 35 fund houses in the country dropped to Rs5,29,121.76 crore at the end of September from Rs5,44,173.96 crore in August.
As part of liquidity infusion exercise, RBI last week, slashed the mandatory cash deposits requirement of banks by 150 basis points to 7.5% to infuse liquidity to the tune of Rs60,000 crore in the cash-strapped banking system.
To encourage inflow the government widened the External Commercial Borrowing window by including mining and petroleum in the infrastructure sector, thereby enabling them to borrow $500 million from the overseas market.
Besides, the government has set up a high powered committee headed by the Finance Secretary to assess the liquidity situation and suggest means to improve cash flow. The liquidity panel is required to submit its interim report within this week.
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First Published: Tue, Oct 14 2008. 12 14 PM IST
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