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The Reserve Bank of India has decided to extend the regulatory benefits announced under the Standing Liquidity Facility-Mutual Fund (SLF-MF) scheme to all banks, irrespective of whether they avail funding from it or deploy their own resources under this scheme.
This move comes in the backdrop of banks borrowing only Rs 2,000 crore so far (till April 29) under the SLF-MF scheme, which was introduced on April 27, to extend liquidity support to mutual funds, which are facing liquidity pressure.
The RBI opened the SLF-MF facility of Rs 50,000 crore with a view to ease the liquidity pressure facing MFs. This facility is available till May 11, 2020 or up to utilization of the allocated amount, whichever is earlier.
“Banks 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 paper (CPs), debentures and certificates of deposit (CDs) held by MFs will be eligible to claim all the regulatory benefits available under SLF-MF scheme without the need to avail back to back funding from the Reserve Bank under the SLF-MF,” the central bank said.
Under the SLF-MF, the RBI conducts repo operations of 90 days tenor at the fixed repo rate.Support extended to MFs under the SLF-MF are exempted from banks’ capital market exposure limits.
The RBI said the bank claiming the regulatory benefits under SLF-MF scheme would be required to submit a weekly statement containing consolidated information on entity-wise and instrument-wise loans and advances extended or investment made to eligible entities to it on every Monday till the closure of the scheme.
Liquidity strains on MFs intensified in the wake of redemption pressures related to closure of some debt MFs schemes by Franklin Templeton Mutual Fund and potential contagious effects.
Meanwhile, in view of the continuing disruptions caused by COVID-19, the RBI has decided to continue with the revised timings for Fixed-rate Reverse Repo and marginal standing facility (both 09:00 hrs to 23:59 hours) operations till further notice.
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