RBI announces Special Liquidity Mutual Funds worth Rs 50,000 crores

On April 27, 2020, the Reserve Bank of India announced the special liquidity facility for mutual funds of Rs 50,000 crores. The Reserve Bank of India is increasing liquidity flow in capital markets as COVID-19 has imposed liquidity strains on mutual funds.

Highlights

The Special Liquidity Facility for Mutual Funds (SLF-MF) is to conduct repo operations for 90 days. Under the scheme, the banks shall submit their bids on any days between Monday and Friday.

Key Features

The Funds are to be used by the banks exclusively to meet the following liquidity requirements

  • To extend the loan period
  • To undertake purchases of investment-grade corporate bonds, debentures and certificates of Deposit. A debenture is a long-term security that yields fixed rate of interest secured against assets.
  • Under the scheme, the liquidity support even when exceeds 25% of total investment is to be permitted to be included as Held to Maturity.
  • The banks shall decide the repo or the lending rates of the mutual funds. However, the Reserve Bank of India is to hold the tenor of repo rates for a minimum of three months.

Held to Maturity

The Held to Maturity are debt securities that are acquired to hold it till maturity. It is usually recorded as amortized cost in the financial statements of a company.

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