RBI's liquidity support for MFs may struggle to be effective: Fitch
India TV NewsThe Reserve Bank of India''s liquidity support for mutual funds may struggle to be effective, as its success will hang on banks'' appetite to take up the risks involved, amid low capital headroom and a likely increase in fresh non-performing loans, according to Fitch. The RBI''s Rs 50,000 crore Special Liquidity Facility for Mutual Funds will provide 90-day repo funding to banks, to extend liquidity to - or purchase commercial paper and debt securities from - local mutual funds. "The official support measures announced for mutual funds in India may struggle to be effective, as undercapitalised banks are unlikely to be tempted to extend liquidity to the sector without capital relief on the facilities," Fitch Ratings said in a statement. "Fitch believes funds classified as "Credit Risk Funds" are most at risk if redemptions continue, particularly where funds have exposure to less liquid securities, such as unlisted securities, and/or have demonstrably higher risk appetite through exposure to defaulted entities such as IL&FS, Religare Finvest, and/or Dewan Housing," it said.