In order to ease the liquidity pressures on mutual funds, impacted by coronavirus crisis, Reserve Bank of India (RBI) has initiated a special liquidity facility of Rs 50,000 crore namely “Special Liquidity Facility-Mutual Funds (SLF-MF)”under which RBI will conduct repo operations of 90 days tenor at the fixed repo rate.
- The timeline of the scheme is from April 27, 2020 to May 11, 2020 or up to utilization of the allocated amount, whichever is earlier.
- 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).
- Under this facility, the RBI will provide funds to banks at lower rates.
Usage of funds availed under SLF-MF:
The funds availed under the SLF-MF have to be used by banks exclusively for meeting the liquidity requirements of MFs by:
- Extending loans or
- Undertaking outright purchase of repos against the collateral of investment grade corporate bonds, commercial papers (CPs), debentures and certificates of Deposit (CDs) held by MFs.
Benefits availed under SLF-MF
-Any liquidity support availed under the SLF-MF will be classified as held to maturity (HTM) even in excess of 25% of total investment permitted to be included in the HTM portfolio.
-Exposures under this facility will also not be calculated 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 calculated for computation of Adjusted Non-food Bank Credit (ANBC).
-The support extended to MFs under the SLF-MF will be exempted from banks’ capital market exposure limits.
What is Mutual Fund?
Mutual funds pool money from the investing public and use that money to buy other securities, usually stocks and bonds. It’s different from investing in stocks as unlike stock, mutual fund shares do not give its holders any voting rights. A share of a mutual fund represents investments in many different stocks (or other securities) instead of just one holding.
About Reserve Bank of India (RBI):
Headquarters– Mumbai, Maharashtra
Formation– 1 April 1935
Governor– Shaktikanta Das
Deputy Governors– 4 (Bibhu Prasad Kanungo, Mahesh Kumar Jain, Michael Debabrata Patra, one is yet to be appointed).