Congress leader P. Chidambaram has urged the government to act swiftly, before the markets reopen on Monday, to resolve the situation created by Franklin Templeton Mutual Fund’s decision to wind up six debt schemes. He offered the example of his experience in a similar situation while Finance Minister when the RBI had announced measures to deal with the problem.
The fund has cited a liquidity crisis in the bond markets and an unprecedented level of redemptions following the COVID-19 outbreak as reasons for its decision.
Noting that the situation is “a matter of grave concern to the investors, mutual fund industry and the financial markets”, Mr. Chidambaram recalled his actions in October 2008 when mutual funds faced liquidity stress due to the global financial crisis.
The Congress government had immediately consulted the RBI, the Securities and Exchange Board of India (SEBI), the Indian Banks’ Association, and the Association of Mutual Funds in India.
“An urgent meeting of the [Financial Stability and Development Council] FSDC was convened and a solution was found by the end of the day,” said the Rajya Sabha member, in a statement on Saturday. “On the next morning, officers of RBI and SEBI met at 8 a.m., and RBI announced a 14-day special repo facility and allowed an additional 0.5% of NDTL [Net Demand and Time Liability]. The situation was resolved.”
With the markets being closed for two days, Mr. Chidambram urged the government to “act promptly and resolve the situation quickly”.
