RBI announces Special Liquidity Facility for Mutual Funds

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The Reserve Bank of India (RBI) on Monday stepped in with a Rs 50,000 crore special liquidity facility for Mutual Funds in the wake of Franklin Templeton’s episode.

RBI will conduct repo operations of 90 days tenor at a fixed repo rate under the SLF-MF. The SLF-MF is on-tape and open-ended, and banks are allowed to submit their bids to avail funding on any day from Monday to Friday.

According to a statement of RBI, the scheme will be available from today and last till May 11, 2020, or till the utilization of the allocated amount.

It may be noted that the funds available under SLF-MF can be used by banks “exclusively” for meeting liquidity requirements of Mutual Funds.

RBI will review the timeline and amount, depending upon market conditions that prevail in the future.

The move is aimed towards helping ease liquidity pressure on the Mutual Fund industry, which has been under pressure amid the Covid-19 lockdown.

On Friday, Franklin Templeton shut down six active mutual funds in India, triggering panic across the MF industry. Experts feared that the move could have a contagion effect on many other active MFs.

RBI also reiterated that it is committed to mitigating economic risks arising from Covid-19 and is constantly monitoring all segments and sectors to minimize stress.

Senior Congress leader P Chidambaram also welcomed RBI’s move and said, “I welcome the RBI’s announcement of a Rs 50,000 crore special liquidity facility for Mutual Funds. I am glad that RBI has taken note of the concerns expressed two days ago and requesting prompt action.”

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