The Reserve Bank of India (RBI) will inject Rs20,000 crore through short-term lending route to help the mutual funds meet their liquidity needs and overcome redemption pressure.

The RBI has allowed all scheduled commercial banks (excluding regional rural banks and local area banks) and all-India term lending and refinancing institutions to lend to mutual funds against and buyback of certificates of deposits (CDs) for a period of 15 days, the central bank said in a release.

''RBI has decided to conduct a special 14-day repo at nine per cent per annum for Rs20,000 crore today with a view to enabling banks to meet the liquidity requirement of mutual funds," the release said.

The restrictions on lending and buy-back have been relaxed only in respect of the CDs held by mutual funds, the release added.

While granting such loans to the mutual funds, the banks should keep in view the provisions of the 'SEBI (Mutual Funds) Regulations, 1996' the release said.

The mutual funds will be expected to submit the certificate of deposits (CDs) as collaterals to the banks.

The Indian Banks association, the apex body of banking institutions, will fix the lending rates in consultation with the mutual fund industry to help meet the redemption pressure, finance minister P Chidambaram said.

"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 fund houses," Chidambaram said.

"Government has been informed by the mutual fund industry that against their borrowings from the banks they will give as security mainly certificate of deposits of the bank themselves," Chidambaram said.

The decision followed a meeting between SEBI chairman C B Bhave and RBI deputy governors, he said. The RBI also met representatives of key players in the mutual fund industry.