Signalling assistance: On RBI relief for shared funds

The Reserve Bank of India’s decision to open an unique facility to guarantee the schedule of adequate liquidity for the mutual fund industry is a timely move in signalling to financiers that the reserve bank is alert to the need to maintain financial stability in these challenging times. In assigning50,000 crore exclusively for business banks to provide to shared funds, the RBI made clear on Monday that it wants to tamp down on any build-up of liquidity strains at mutual fund houses in the wake of heightened volatility in the capital markets and increased redemption pressures as a fallout of the COVID-19 pandemic. The proximate trigger for the central bank’s move was recently’s announcement by Franklin Templeton M