With the improvement in liquidity conditions, the Reserve Bank on Tuesday decided to close the special window for commercial banks to meet the cash requirements of mutual funds (MFs) with immediate effect.

The RBI, in July, had opened a special borrowing window of Rs 25,000 crore to help the crisis-ridden mutual funds tide over liquidity problems.

“With the normalisation of exceptional measures and taking into consideration the improvement in liquidity conditions since then, it has been decided to close this window with immediate effect,” RBI Governor Raghuram Rajan said in the second quarter monetary policy review.

The RBI, on July 17, had opened a special three-day repo auction under which banks would be encouraged to raise funds totalling Rs 25,000 crore at 10.25 per cent for on lending to mutual funds.

The last time RBI had opened such a facility was in 2008, after the collapse of Lehman Brothers triggered a chain reaction and caused a global financial crisis that sent fixed income markets in a tizzy.

At the end of September quarter, Assets Under Management (AUM) of the mutual fund industry fell by 4.5 per cent to Rs 8.08 lakh crore from Rs 8.46 lakh crore in the previous three-month period.

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