#RBI announces Rs 50,000 cr special liquidity facility for the #mutualfund segment

Mumbai:  RBI Announces ` 50,000 crore Special Liquidity Facility for Mutual
Funds (SLF-MF) . 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.
2. The RBI has stated that it remains vigilant and will take whatever steps
are necessary to mitigate the economic impact of COVID-19 and preserve
financial stability. With a view to easing liquidity pressures on MFs, it has
been decided to open a special liquidity facility for mutual funds of ` 50,000
crore.
3. 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.

4. 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.
5. 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.
6. Details are given in the Annex