Banks borrow only Rs 2,000 crore on Day 1 of RBI's Rs 50,000 crore liquidity facility for MFs: Report

Industry officials are concerned banks may be unwilling to accept the majority of the low-rated securities as collateral

Moneycontrol News

April 29, 2020 / 10:56 AM IST

Banks on April 28 borrowed only Rs 2,000 crore under the Reserve Bank of India’s (RBI) special liquidity window for mutual funds (MF). The Rs 50,000 crore facility, open until May 11, is aimed at easing the liquidity pressure on funds.

Under the facility, banks can submit bids to avail funding from Monday through Friday, “but the response so far has been poor,” Marzban Irani, CIO-Fixed Income, LIC MF told the Hindu BusinessLine.

The reason why banks are cautious in availing this facility is that they prefer 'AAA'-rated debt instruments or at best 'AA'-rated instruments of microfinance institutions (MFIs), housing finance companies (HFCs) and non-banking finance companies (NBFCs). But there is not much interest in instruments with lower ratings.

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Many fund houses have already offloaded high rated papers to ease pressure at the onset of the coronavirus and the ongoing economic slowdown. Banks prefer to stay away from credit-risk in case the papers have been downgraded.

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