InvestorQ : How will mutual funds handle the redemption pressure if NBFCs start defaulting on the bonds that are issued to these MFs?
Lavanya Subramanian made post

How will mutual funds handle the redemption pressure if NBFCs start defaulting on the bonds that are issued to these MFs?

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ishika Banerjee answered.
6 months ago
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Mutual fund liquidity is a major issue and it is being addressed at two levels. Firstly, mutual funds are likely to get a temporary life line from SEBI in the form of relaxation of the 20% borrowing limit (of net assets) for mutual funds. It may be recollected that in the month of March 2020, the gross redemptions were to the tune of Rs.195,000 crore and this predominantly debt fund redemptions are expected to continue in the coming months also. Redemption pressure from a number of corporate treasuries is expected to continue. This liquidity will help mutual funds to tide over any liquidity shortfall.

The bigger issue is addressing the problem at the NBFC level and now SBI has agreed to extend additional loan facilities to borrowers, especially NBFCs and MFIs, to tide over the liquidity crisis at the current juncture. The problem is huge because NBFCs have Rs.250,000 crore of NCDs and CPs coming up for maturity before the end of May. NBFCs are in a spot because they are offering moratorium to borrowers but are left with a mismatch without a similar benefit from their lenders. SBI move should also induce other banks to follow suit and help out the NBFCs in this liquidity crunch.

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