Advertisement

Home / Business / Pressure on RBI to support mutual funds

Pressure on RBI to support mutual funds

In 2013, a Rs 25,000-crore fund was provided to banks under a 3-day special repo auction, which could later be given to MFs
While Franklin Templeton decided to wind up its six debt schemes, BoI Axa — another fund house — saw the net asset values (NAV) of three schemes taking a hit of 2-50 per cent as they marked their exposure down in some of the debt instruments in their portfolio.
While Franklin Templeton decided to wind up its six debt schemes, BoI Axa — another fund house — saw the net asset values (NAV) of three schemes taking a hit of 2-50 per cent as they marked their exposure down in some of the debt instruments in their portfolio.
(Shutterstock)

Our Special Correspondent   |   Mumbai   |   Published 26.04.20, 10:28 PM

The Reserve Bank of India (RBI) will be under pressure to relieve the stress in the liquidity market in the wake of the closure of some mutual fund schemes of Franklin Templeton and the poor response to the RBI’s targeted long-term repo auction — with the markets expecting some support measures for mutual funds.

While Franklin Templeton decided to wind up its six debt schemes, BoI Axa — another fund house — saw the net asset values (NAV) of three schemes taking a hit of 2-50 per cent as they marked their exposure down in some of the debt instruments in their portfolio.

The fallout in Franklin Templeton came immediately after the second round of targeted long term repo operations (TLTRO 2.0), meant to improve bank funding to mid- and small-sized non-banking finance companies (NBFCs), elicited a poor response.

Banks picked up 50 per cent of the sum put up for the auction despite the availability of cheap funds, a sign of their willingness to invest either in AAA rated papers of companies or in public sector undertakings.

Deepak Jasani, head of research at HDFC Securities, said the Franklin Templeton impasse created fresh worries of stress in the economy, especially in the financial sector. The week may not bring any good news as investors remain apprehensive about whether the crisis will affect other asset managers, Jasani said.

All eyes are now on the RBI amid optimism the central bank will open a special window to support the mutual fund industry.

“The RBI needs to move fast or fund houses may see more redemption pressures, particularly in debt schemes. The opening of a window could bring a huge relief to the industry,” an analyst said.

Twice before, in 2008 and 2013, the RBI had provided a special borrowing window to help fund houses tide themselves over their liquidity problems.

In 2013, a Rs 25,000-crore fund was provided to banks under a three-day special repo auction, which could later be given to mutual funds.

In 2008, the Reserve Bank had conducted a 15-day repo auction for an amount of Rs 20,000 crore.

Former finance minister P. Chidambaram on Saturday called for some action from the government.

In a statement, the Congress leader said Franklin Templeton Mutual Fund’s decision to wind up six debt schemes is a matter of grave concern to the investors, the mutual fund industry and the financial markets and recalled how prompt action taken by the Manmohan Singh government in October 2008 resolved the liquidity problem faced by the mutual fund industry.

Observers, however, point out the RBI this time is facing the added problem of lack of liquidity in certain sections of the corporate bond market, which has seen yields of AA and below rated bonds rise over the past few days.

There have been calls for the central bank to follow the example of some of its peers such as the US Federal Reserve and directly buy corporate bonds.



Advertisement
Advertisement
Advertisement
 
 
 
Copyright © 2020 The Telegraph. All rights reserved.