MUMBAI (Reuters) – The Reserve Bank of India (RBI) is opening a special liquidity facility of upto 500 billion rupees ($6.6 billion) to help mutual funds tide over a severe liquidity strain imposed by the coronavirus pandemic and redemption pressures, it said on Monday.
Fund houses in India have struggled to allay investors’ fears of a flood of redemption requests after the prominent Franklin Templeton Mutual Fund said on Thursday it would wind up six credit funds for lack of liquidity.
“The stress is, however, confined to the high-risk debt mutual fund segment at this stage; the larger industry remains liquid,” the RBI said in its statement.
It will conduct repo operations for 90 days’ tenor at the fixed repo rate and the funds will be available on-tap and open-ended, it added.
Banks will need to access the funds from the RBI at the repo window and extend loans to mutual funds, buy outright corporate bonds or commercial papers from them or extend the funds against collateral through a repo.
Exposures under this facility will not be reckoned under the large exposures framework and stand to be classified as “held-to-maturity”, even in excess of the permissible 25% of total investments, the central bank added.
India has reported 26,496 virus infections and 824 deaths.
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(Reporting by Swati Bhat; Editing by Clarence Fernandez)