InvestorQ : How do you see the RBI special lending facility for mutual funds of Rs.50,000 crore help avoid situations like Franklin Templeton fund closure?
Riya Dwivedi made post

How do you see the RBI special lending facility for mutual funds of Rs.50,000 crore help avoid situations like Franklin Templeton fund closure?

Answer
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rhea Babu answered.
6 months ago


On 27 April, the RBI announced a special liquidity facility of Rs.50,000 crore for mutual funds (SLF-MF) to ease liquidity pressures on mutual funds. RBI will conduct repo operations of 90 days tenor at the fixed repo rate under the SLF-MF.

In other words, banks will get loans at a concessional rate of interest from the RBI with a specific mandate to on-lend such funds to mutual funds that are in the midst of a liquidity crunch. Such support availed under the SLF-MF would be eligible to be classified as held to maturity (HTM).

The RBI has said that since the stress is confined to the high-risk debt mutual fund segment at this stage, they do not see the real risk off contagion at this point of time.

While the idea is timely, you will have to wait and see the bank response because in case of the NBFC special window, banks did not show too much enthusiasm.