With an aim to ease liquidity pressures on mutual funds, the Reserve Bank of India (RBI) on Monday announced special liquidity support of Rs 50,000 crore for mutual funds to help tide over the coronavirus disease (COVID-19) pandemic outbreak's effects, which are rapidly engulfing India like wildfire.
The new scheme will be effective either from a period of April 27 (i.e. Monday) to May 11 or till the utilisation of the entirety of the allocated amount, whichever is earlier. The central bank has also said that it may review the timeline and amount in the future, depending upon market conditions.
The RBI also announced that under this facility, it will give funds to banks at lower rates and that the banks will be allowed to avail funds for meeting the liquidity requirements of mutual funds.
Banks were also allowed to extend loans to mutual funds, undertaking the 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 mutual funds.
The repo operations of 90 days tenor at the fixed repo rate will be conducted by the RBI. The central bank said that this liquidity facility is on-tap and open-ended and banks will be allowed to avail funding on any day from Monday to Friday (excluding holidays).
The RBI assserted it "remains vigilant and will take whatever steps are necessary to mitigate the economic impact of COVID-19 and preserve financial stability."
