What changed
RBI permitted banks to avail additional liquidity support under LAF up to 0.5% of NDTL, solely for meeting mutual fund liquidity requirements. This is in addition to the earlier temporary measure allowing up to 1% of NDTL. The facility terminates 14 days after the special term repo facility for mutual funds ends.
What it means for you
Banks can now access extra liquidity from RBI to channel to mutual funds, helping stabilize fund outflows during stress. The SLR shortfall from this support can be exempted from penal interest if banks apply in writing under Section 24(8) of the Banking Regulation Act. This is a temporary, ad hoc measure subject to continuous review based on liquidity conditions.
What you must do
- Apply to RBI in writing under Section 24(8) for waiver of penal interest on any SLR shortfall from this additional support.
- Ensure the additional liquidity availed is used exclusively for meeting mutual fund liquidity requirements.
- Track the termination date of the special term repo facility for mutual funds to plan repayment of this support.
- Monitor liquidity conditions continuously as the measure is subject to review.
Who it affects
All scheduled commercial banks, Mutual funds relying on bank liquidity support, Treasury and liquidity management teams at banks
What is the maximum additional SLR support I can avail under this circular?
You can avail up to 0.5% of your net demand and time liabilities (NDTL) exclusively for mutual fund liquidity needs, on top of the earlier 1% of NDTL allowed.
How long is this additional liquidity support available?
It terminates 14 days from the closure of the special term repo facility for mutual funds announced on October 14, 2008.
Can I avoid penal interest if I have an SLR shortfall from this support?
Yes, you can apply to RBI in writing under Section 24(8) of the Banking Regulation Act, 1949, requesting not to demand penal interest. RBI will consider such requests.