Citing the Reserve Bank of India's announcement earlier today where it provided a special liquidity facility of 500 bln rupees for mutual funds, Sanyal said that the Ministry of Finance and the central bank are committed to ensure the "smooth functioning" of the financial system. The special facility for mutual funds comes after Franklin Templeton Mutual Fund on Thursday decided to wind up six of its debt schemes due to high redemption pressures following coronavirus-induced volatility in capital markets.
The closure of the schemes created panic in the corporate debt market. Under the special facility provided by the RBI, which will be on-tap and open-ended and available from today until May 11, the central bank will conduct 90-day repos at the repo rate. Banks can bid for funds on any working day. The funds must be used exclusively for meeting liquidity requirements of mutual funds either through the extension of loans or undertaking outright purchase or repos against the collateral of investment grade corporate bonds, commercial papers, debentures, and certificates of deposit held by mutual funds.
