India is setting up a fund worth 330 billion rupees ($4 billion) to provide liquidity to its corporate debt market during bouts of stress, to help stem panic selling and ease redemption pressures, an SBI Mutual Fund executive told Reuters.
The government will provide 90% of the money for the fund, and other asset managers would contribute the rest, deputy managing director D.P. Singh said.
SBI Mutual Fund, a unit of India’s largest state-owned lender, State Bank of India, has been tasked with administrating the backstop fund, which was first proposed by the Securities and Exchange Board of India (SEBI) in 2020 after high-profile defaults rocked the domestic debt market.
“We have seen in the past that whenever there is a credit event, there is a run on the funds for redemption which in turn creates pressure on liquidity,” said Singh in an emailed response to questions from Reuters.
“This fund is being created to avoid such a situation in the future and meet the redemption pressure in any such event.”
During times of stress, the backstop fund could step into the market to buy relatively illiquid investment grade bonds.
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