Two days after asset management company Franklin Templeton India wound up six of its debt funds, Congress leader and former Union Finance Minister P Chidambaram called the decision a matter of grave concern and urged the Centre to resolve the situation quickly.
On April 23, the Indian unit of the American holding company announced the unprecedented decision, stating shortage of liquidity in ‘certain segments’ of the corporate bonds market and heavy redemptions in the fixed-income segment of mutual funds. It left the investors in a state of shock as their monies of around ₹31,000 crore had been frozen.
Reacting to the incident on Twitter, Chidambaram recalled a similar situation during the global financial crisis in 2007-08, when mutual funds had underperformed significantly.
In early October 2008, mutual funds faced liquidity stress and the government immediately consulted RBI, Securities and Exchange Board of India (SEBI), Indian Banks Association (IBA), Association of Mutual Funds in India (AMFI) and others, he said. “An urgent meeting of the Financial Stability and Development Council (FSDC) was convened and a solution was found by the end of the day.”
The next morning, the RBI announced a 14-day special repo facility, following a meeting with officers of SEBI. It had also allowed an additional 0.5 per cent of net demand and time liabilities (NDTL) and the situation was resolved, Chidamabaram recalled.
As the markets would be closed on April 25 and 26, he urged the Centre to act promptly and resolve the situation.