RBI announces Rs 50,000 crore Special Liquidity Facility for Mutual Funds

The Reserve Bank of India has announced a Special Liquidity Facility of Rs 50,000 crore for Mutual Funds. This has been done by the central bank in order to ease liquidity pressures on the Mutual Funds. This is a measure taken by the RBI to mitigate the economic impact of COVID-19 and preserve financial stability.

Under the Special Liquidity Facility for Mutual Funds (SLF-MF), repo operations 90 days tenor would be conducted by the RBI at the fixed repo rate. The SLF-MF is on-tap and open-ended.

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  • Under this, the banks will be allowed to submit their bids to avail funding on any day from Monday to Friday (excluding holidays). Availability of the scheme would be from April 27, 2020 till May 11, 2020 or up to utilization of the allocated amount, whichever is earlier.
  • Banks can use the funds availed under the SLF-MF exclusively for meeting the liquidity requirements of Mutual Funds by extending loans, 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
  • The Reserve Bank of India also stated that the liquidity support availed under the SLF-MF would be eligible to be categorized as held to maturity even in excess of 25% of total investment permitted to be included in the held to maturity portfolio.
  • Exposures under SLF-MF will not be computed under the Large Exposure Framework. Support provided to Mutual Funds under the SLF-MF shall be excluded from banks’ capital market exposure limits.

Important takeaways for all competitive exams:

  • RBI 25th Governor: Shaktikanta Das; Headquarters: Mumbai; Founded: 1 April 1935, Kolkata.

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