Rate at which Banks will lend to Mutual Funds being worked out:FM

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New Delhi, Oct 14 (UNI) Finance Minister P Chidambaram today alluded to the fact that several steps are afoot to improve the liquidity situation and settle problems that impact on the Indian economy as a result of the global financial crisis, including Indian Banks Association(IBA) working out an an appropriate rate at which Banks will on-lend to the mutual funds.

In a statement, Mr Chidambaram said the IBA Chairman is in touch with the Banks as well as the mutual fund industry to decide on an appropriate rate at which the Banks will on-lend to the mutual fund industry.

Mr Chidambaram said last night, it was brought to the notice of Government that some mutual funds faced some stress in liquidity in meeting redemption requirements in respect of debt instruments and money market instruments. They sought a facility for accessing funds.

Consequently, the government requested the SEBI and the RBI to meet today and address the issue.

This morning, Chairman, SEBI met RBI Deputy Governor. Later, the RBI heard key players in the mutual fund industry.

Mr Chidambaram said following these meetings, the RBI has announced a special 14-day repo (to commercial banks) at nine per cent for a sum of Rs 20,000 crore with a view to enable the banks to meet the liquidity requirements of mutual funds.

''Government welcomes this announcement,''Mr Chidambaram said.

He said the government has been informed by the mutual fund industry that against their borrowing from the banks they will give as security, mainly, Certificate of Deposits (CDs) of the banks themselves.

The Finance Minister said the United States and the European capital markets closed on a strong note last night. The East Asian markets have opened on a bright note this morning.

''It appears that the measures announced by various Governments and Central Banks have not only infused greater liquidity into the markets but also helped restore confidence to a significant degree,'' he said.

Mr Chidambaram expressed the hope that the same sense of optimism and confidence will be visible in the Indian markets too.

The Finance Minister said the RBI Governor has returned to Mumbai but has been requested to go over to Delhi this evening.

''The Governor is scheduled to meet the Prime Minister later this evening,'' Mr Chidambaram said.

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