BackBanks borrow ₹2,000 crore from RBI for mutual fund liquidity
Under the special liquidity facility for mutual funds, RBI is conducting 90-day repo operations for banks to borrow on tapRBI's liquidity window offering acts more as a psychological signal to mitigate investor panic by providing assurances of adequate money to meet redemption pressures.
PremiumMUMBAI : Lenders borrowed ₹2,000 crore from the Reserve Bank of India (RBI) on 27 April under the special liquidity window for mutual funds, showed data released by the central bank.
On Monday, RBI had announced a ₹50,000-crore special liquidity facility for mutual funds to calm investor sentiment in the aftermath of Franklin Templeton Mutual Fund winding up six debt funds. The central bank's liquidity window offering acts more as a psychological signal to mitigate investor panic by providing assurances of adequate money to meet redemption pressures.
Franklin Templeton Mutual Fund on 23 April said it was shutting down six of its yield-oriented managed credit funds with total assets under management of ₹25,856 crore, owing to severe illiquidity and redemption pressures induced by the covid-19 pandemic. The collapse of these funds was expected to trigger a redemption pressure on other debt funds.
“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 therefrom. The stress is, however, confined to the high-risk debt MF segment at this stage; the larger industry remains liquid," RBI had said in its press release on 27 April.
Under the special liquidity facility for mutual funds (SLF-MF), RBI is conducting 90-day repo operations for banks to borrow on tap. Banks can submit their bids from Monday to Friday (excluding holidays) and is available from 27 April till 11 May or till ₹50,000 crore is utilised. The money raised by banks can be used for short-term loans to mutual funds or to invest in debt securities held by these MFs.
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