BUSINESS

Banks borrow Rs. 2,000 crore from RBI for mutual funds

A signal needs to be given out that no MF or NBFC is going down, says Motilal Oswal’s Aashish Somaiya.PAUL NORONha

A signal needs to be given out that no MF or NBFC is going down, says Motilal Oswal’s Aashish Somaiya.PAUL NORONha  

Window of Rs. 50,000 cr. open till May 11; ‘crisis of confidence affecting sentiment’

Commercial banks have borrowed Rs. 2,000 crore from the liquidity window that was offered by the Reserve Bank of India for mutual funds (MFs), so far, latest data released by the central bank showed.

On Monday, the RBI had announced a special window of Rs. 50,000 crore for mutual funds in view of the redemption pressure that the fund houses are facing.

Exclusive for MFs

Funds availed under this facility will be used by banks exclusively for meeting the liquidity requirements of MFs, RBI had said. The scheme was made available from April 27, 2020 till May 11, 2020 or up to utilisation of the allocated amount, whichever is earlier.

“There are two issues currently — liquidity and crisis of confidence. The move to provide liquidity is fabulous but one needs to address the root cause as well,” Aashish Somaiya, managing director and chief executive officer, Motilal Oswal Asset Management.

“Banks are risk averse and so will be selective on taking the papers on their books. There is stress that will lead to redemptions and hence a signal needs to be given out [by regulators, government] that no mutual fund or for that matter no NBFC is going down,” Mr. Somaiya added.

The window was opened by RBI after Franklin Templeton Mutual Fund decided to wind up six debt funds that have combined assets under management of nearly Rs. 26,000 crore, on account of illiquid, low-rated instruments in their portfolio, last week.

The fund house had said that it decided to wind up the schemes to preserve the value at least at the current levels, as it was getting eroded due to a combination of redemption pressures and mark-to-market losses. These stemmed from the lack of liquidity on account of the COVID-19 impact on the markets.

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