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RBI extends regulatory benefits to all banks to meet mutual funds' liquidity

To claim benefits under SLF-MF scheme, the banks would be required to submit a weekly statement on loans and advances extended to eligible entities

Chitranjan Kumar | April 30, 2020 | Updated 14:44 IST
RBI extends regulatory benefits to all banks to meet mutual funds' liquidity
This liquidity facility is available till May 11, 2020 or up to utilisation of the allocated amount, whichever is earlier

The Reserve Bank of India (RBI) on Thursday said it has decided to extend the regulatory benefits announced under the Standing Liquidity Facility-Mutual Fund (SLF-MF) scheme to all banks. To claim the regulatory benefits, the banks would be required to submit a weekly statement on loans and advances extended to eligible entities.

"Based on requests received from banks, it has now been decided that the regulatory benefits announced under the SLF-MF scheme will be extended to all banks, irrespective of whether they avail funding from the RBI or deploy their own resources under the above-mentioned scheme," the central bank said in a press release.

The decision comes merely three days after the RBI on April 27 announced a Rs 50,000 crore special liquidity facility to ease pressure on mutual funds, which are facing liquidity crisis amid heightened volatility in capital markets in reaction to COVID-19 outbreak. This liquidity facility is available till May 11, 2020 or up to utilisation of the allocated amount, whichever is earlier.

Also Read: RBI announces Rs 50,000 crore liquidity boost for mutual funds

"Banks meeting the liquidity requirements of MFs by (1) extending loans, and (2) undertaking outright purchase of and/or repos against the collateral of investment grade corporate bonds, commercial paper (CPs), debentures and certificates of deposit (CDs) held by MFs will be eligible to claim all the regulatory benefits available under SLF-MF scheme without the need to avail back to back funding from the Reserve Bank under the SLF-MF," the central bank said.

"The bank claiming the regulatory benefits as detailed above would be required to submit a weekly statement containing consolidated information on entity-wise and instrument-wise loans and advances extended or investment made to eligible entities to Financial Markets Operations Department (email) and to Department of Supervision (email) on every Monday till the closure of the scheme," the release said.

Also Read: RBI's Rs 50,000 crore liquidity boost for mutual fund may struggle to be effective, says Fitch

Under the SLF-MF scheme, the RBI conducts repo operations of 90 days tenor at the fixed repo rate. The 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).

Earlier on Wednesday, global rating agency Fitch had said that the RBI's support measures for mutual funds might not be effective, as low-capitalised banks were unlikely to extend liquidity to the sector without capital relief on the facilities. It also expressed concern that if the liquidity facility did not achieve its aims of supporting liquidity or restoring market confidence, more debt schemes would be forced to suspend redemptions, also known as 'gating'.

"The success of the SLF-MF will hang on banks' appetite to take up the risks involved, against the system-wide backdrop of low capital headroom and a likely increase in fresh non-performing loans," the rating agency said.

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