RBI Announces Rs 50,000 Crore Special Liquidity Facility for Mutual Funds

The Reserve Bank of India's (RBI) decision to provide a special liquidity facility of Rs 50,000 crore to mutual funds has sent shockwaves of relief across the nation. The move has been hailed by politicians from across the spectrum, including the BJP and the Congress, as a much-needed confidence booster for the economy, which has been severely impacted by the COVID-19 pandemic. As senior journalist Monika Halan notes, the RBI has identified a liquidity stress in the mutual fund debt market and has taken proactive steps to mitigate the risk of a contagion effect. The special facility, known as the SLF-MF, aims to provide liquidity to mutual funds by allowing banks to conduct repo operations against the collateral of investment-grade corporate bonds, commercial papers, debentures, and certificates of deposit held by the funds.

Key Takeaways:

• The RBI has launched a special liquidity facility of Rs 50,000 crore for mutual funds, known as the SLF-MF, to address liquidity stress in the debt market.
• The scheme is on-tap and open-ended, allowing banks to submit bids from Monday to Friday to avail funding.
• The RBI will review the facility's timeline and amount based on market conditions.
• The funds availed under the SLF-MF must be used exclusively for meeting the liquidity requirements of mutual funds by extending loans or undertaking outright purchase of securities.

Statistics:

• Rs 50,000 crore: The amount of the special liquidity facility provided by the RBI to mutual funds.
• 90 days: The tenor of the repo operations under the SLF-MF.
• April 27, 2020: The start date of the SLF-MF.
• May 11, 2020: The end date of the SLF-MF, or up to utilization of the allocated amount, whichever is earlier.

Sources:

• RBI announcment (no date provided)
• Monika Halan's tweet (no date provided)
• Copyright 2020 Indian National Press (Bombay) Pvt. Ltd., distributed by Contify.com (no date provided)