Feb 17 Reuters 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 India39;s largest stateowned 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 highprofile 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.

The need for a buyer and seller of last resort for corporate bonds was highlighted by Franklin Templeton India39;s move to stop redemptions from six debt funds in April 2020 as investors withdrew money and the fund house was unable to sell debt investments in the market.

This backstop facility fund comes out of Indian market peculiarity that…