April 27, 2020 10:51:57 am
The Reserve Bank of India (RBI) today announced a Rs 50,000 crore special liquidity facility for mutual funds (SLF-MF). The move comes days after Franklin Templeton, one of the first global financial firms to launch asset management operations in the country, six fixed-income and credit-risk funds locking in 308 billion rupees ($4.1 billion) of investor wealth.
In a press statement, the Indian central bank said that under the SLF-MF, it 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 SLF-MF is available from today (April 27) till May 11 or up to utilisation of the allocated amount, whichever is earlier. The central bank will review the timeline and amount, depending upon market conditions.
RBI explained that funds availed under the SLF-MF shall be used by banks exclusively for meeting the liquidity requirements of mutual funds by extending loans, and 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 mutual funds.
“Liquidity support availed under the SLF-MF would be eligible to be classified as held to maturity (HTM) even in excess of 25 per cent of total investment permitted to be included in the HTM portfolio,” the central bank statement said.
The RBI further said that that exposures under this facility will not be reckoned under the Large Exposure Framework (LEF). The face value of securities acquired under the SLF-MF and kept in the HTM category will not be reckoned for computation of adjusted non-food bank credit (ANBC) for the purpose of determining priority sector targets/sub-targets.
The central bank said that support extended to MFs under the SLF-MF shall be exempted from banks’ capital market exposure limits.
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