Coronavirus: RBI to open special liquidity window for mutual funds

The Reserve Bank of India (RBI) is set to open a special liquidity facility of upto Rs 50,000 crores ($6.6 billion) to help mutual funds tide over a severe liquidity strain imposed by the coronavirus pandemic and redemption pressures.

The prominent Franklin Templeton Mutual Fund said on Thursday it would wind up six credit funds for lack of liquidity following which fund houses in India have struggled to allay investors' fears of a flood of redemption requests.

"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 a statement.

The RBI will now conduct repo operations for 90 days' tenor at the fixed repo rate and the funds will be available on-tap and open-ended.

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 27,892coronavirus infections and 872deaths as of Monday morning.