Gkseries.com

RBI announced ₹50000 crore liquidity for Mutual Funds

RBI announced ₹50000 crore liquidity for Mutual Funds

The Reserve Bank of India (RBI) has decided to open a special liquidity facility of ₹50,000 crore for mutual funds to ease liquidity pressure on mutual funds. The sudden decision of Franklin Mutual Fund to close six of its debt mutual fund scheme has raised concerns about likely redemption pressures in the debt mutual fund space, and the depth of debt market to handle such a large-scale redemption.

Daily Current Affairs Quiz 2020

Key-Points

Under this move, 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 27 April- 1 May.

The funds availed under the scheme can be used by banks exclusively for meeting the liquidity requirements of MFs by extending loans, and undertaking the outright purchase of and/or repo against the collateral of investment-grade corporate bonds, commercial papers (CPS), debentures and certificates of Deposit (CDs) held by MFs.

The move by the Central Bank will increase confidence among investors.

RBI has also added liquidity support that can be availed under the scheme which would be eligible to be classified as held to maturity (HTM), even in excess of 25% of the total investment that is permitted in the HTM portfolio.

Exposures under this facility will not apply under the Large Exposure Framework (LEF). The face value of securities 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.

The support extended to MFs under the Special Liquidity Facility for Mutual Funds (SLF-MF) shall be exempted from banks’ capital market exposure limits.

Exit mobile version