Heightened volatility in the Indian capital markets caused by COVID-19 have resulted in liquidity strains for a number of mutual funds, have intensified in the wake of Franklin Templeton closing six debt mutual funds last week.
With a view to easing liquidity pressures on Mutual Funds, the Reserve Bank of India has decided to open a special liquidity facility for mutual funds of ₹ 50,000 crore (USD6.56bn).
Under the Special Liquidity Facility for Mutual Funds (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.
Funds availed under the SLF-MF shall be used by banks exclusively for meeting the liquidity requirements of mutual funds by extending loans, and undertaking outright purchases of and/or repos against the collateral of investment grade corporate bonds, commercial papers (CPs), debentures and certificates of Deposit (CDs) held by mutual funds.