The Reserve Bank of India (RBI) on Wednesday opened a special 3-day
repo window for mutual funds to meet their liquidity requirement. Mutual funds can borrow money from this window from banks at 10.25% for an amount of Rs 25,000 crore.
Mutual funds say that they do not
face any immediate liquidity crisis and the RBI move is just a precautionary measure.
Laksmi Iyer, head fixed income and product, said it is just a preemptive move, mutual funds are not facing any liquidity crisis and it is unlikely they would use the window.
The move came after the Reserve Bank of India on Monday limited the allocation of funds under liquidity adjustment facility at Rs 75,000 crore. It also raised the bank rate by 200 basis points to 10.25%.
According to Alok Singh, chief investment officer, Bharti AXA Investment Management, RBI tightened liquidity for a special purpose (to curb speculation on rupee) and mutual fund repo window move is an attempt to bring order to the market.
"Earlier, banks used to have unlimited liquidity and if needed they can buy securities from mutual funds, but since liquidity for banks has also been limited at Rs 75,000 crore, RBI gave a special route for mutual funds to borrow in case they face redemption pressure," he added.
After the RBI move to tighten liquidity on Monday, the 10-year 7.16% G-sec on Tuesday gained 49 basis points to 8.06%. While the 8.15% G-sec 2022 went up 50 bps to 8.18%.
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