Twitter was abuzz after the Reserve Bank of India’s announcement that Rs 50,000 crore special liquidity facility for mutual funds.
Everyone right from the BJP right up to the Congress hailed the apex bank’s move as a confidence boost for the economy, which is facing a crisis, thanks to the novel coronavirus, COVID-19.
According to senior journalist Monika Halan, the RBI's move comes after there was a liquidity stress in the mutual fund debt market. " RBI says that there is liquidity stress in the mutual fund debt funds and there is a threat of a contagion to other parts of the market. This stress is right now only in the higher risk paper, but the fear can spread. Therefore, opened a special window of Rs 50,000 crore for MFs," she tweeted.
Under the 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 on any day from Monday to Friday (excluding holidays). The scheme is available from today i.e., April 27, 2020 till May 11, 2020 or up to utilization of the allocated amount, whichever is earlier. The Reserve Bank will review the timeline and amount, depending upon market conditions.
Funds availed under the SLF-MF shall be used by banks exclusively for meeting the liquidity requirements of MFs by (1) extending loans, and (2) undertaking outright purchase of and/or repos against the collateral of investment grade corporate bonds, commercial papers (CPs), debentures and certificates of Deposit (CDs) held by MFs.
