The Reserve Bank of India has announced Rs 50,000 crores liquidity support for mutual funds.
In a release, the RBI said: “heightened volatility in capital markets in reaction to Covid-19 has imposed liquidity strains on mutual funds which have intensified in wake of redemption pressures related to closure of some debt Mutual Funds and its potential contagious effect there from. The stress is confined to high -risk debt mutual fund segment.”
The RBI has stated it remains vigilant and will take necessary steps to mitigate economic impact of COVID-19 and preserve financial stability.
The RBI shall conduct repo operations of 90 days tenor at fixed repo rate. SLF-MF is on-tap and open-ended, and banks can submit bids to avail funding on any day from Monday to Friday . Scheme is available from April 27, 2020 till May 11, 2020 or up to utilization of the allocated amount, whichever is earlier.
Funds availed under the SLF-MF shall be used by banks for meeting the liquidity requirements of MFs by :-
(1) extending loans, and
(2) undertaking outright purchase of and repos against collateral of investment grade corporate bonds, commercial papers , debentures and certificates of Deposit held by MFs.
Liquidity support under SLF-MF would be eligible to be classified as held to maturity (HTM) in excess of 25 per cent of total investment permitted to be included in the HTM portfolio. Exposures will not be reckoned under the Large Exposure Framework (LEF). Face value of securities acquired under SLF-MF and kept in HTM category will not be reckoned for computation of adjusted non-food bank credit (ANBC) for determining priority sector targets. Support extended to MFs shall be exempted from banks’ capital market exposure limits.
a) Special repo window will be available to all LAF eligible banks against eligible collateral and can be availed only for on-lending to Mutual funds.
b) Eligible banks may place bids electronically on the CBS platform between 9 AM and 12.00 Noon every day. An LAF Repo issue will be created for amount remaining under scheme. Bidding process, settlement and reversal of SLF-MF repo would be similar to existing system being followed.
c) In over-subscription of the notified amount ,allotment will be done on pro-rata basis. RBI will reserve right to inject marginally higher amount than notified amount.
d) Minimum bid amount would be Rupees one crore and multiples thereof.
e) Market participant can place bids of amount less than or equal to the notified amount of issue announced on a given day. RBI will reject bids of the participant if the total bid amount submitted by the participant exceeds the notified amount of the issue.
f) The eligible collateral and the applicable haircuts will remain the same as applicable for LAF.
g) All other terms and conditions as applicable to LAF operations, including facility for security substitution in terms of extant guidelines dated April 12, 20 will also be applicable to these special operations.
h) Minimum tenor of repo with RBI will be for three months.