India’s central bank wants lenders to give money to the troubled mutual fund industry. For that it is willing to give ₹50,000 crore to banks at an interest rate of 4.40% through a special liquidity facility (SLF).
The on tap facility called SLF-MF will be available for the next 15 days. This can be used to lend against investment-grade corporate paper held by mutual funds for any redemption pressures.
Banks can either lend to fund houses through existing credit lines, buy corporate paper held by them or even enter into repurchase agreements against these papers.
This move came on the heels of a shocking closure of six debt funds by Franklin Templeton mutual fund, which has left its investors in the lurch now.