BH CORRESPONDENT, Kolkata: It’s no secret that India’scredit markets have been under pressure even before the coronavirus pandemic. The nationwide lockdown to stem the spread of the virus has only intensified the problems faced by debt markets, which were already grappling with slowing growth, defaults by borrowers and a liquidity squeeze that has left most of India’s non-bank institutions struggling. Then came the wake-up call with Franklin Templeton’s troubles which were linked to its aggressive bets on lower-rated company bonds, the worst affected in the current crisis.
Now, there’s some hope in sight. The Reserve Bank of India has said that it will open a special liquidity window of Rs 50,000 crore to ease pressure on mutual funds, which are facing liquidity strains due to heightened volatility in capital markets.
Banks will draw funds under the Special Liquidity Facility-Mutual Fund (SLF) exclusively for meeting the liquidity requirements of MFs by extending loans. Bank could also make outright purchase of investment-grade corporate bonds, commercial papers (CPs), debentures and certificates of Deposit (CDs) held by MFs.
The scheme is effective from today (April 27, 2020) and will run up to May 11, 2020, or up to utilisation of allocated amount, whichever is earlier. The RBI would review the timeline and amount depending on market conditions.