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Banks to Deploy on-tap TLTRO funds in 5 sectors; NBFCs wrote to RBI to include them as Beneficiaries

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Banks can deploy on-tap TLTRO funds in agriculture, retail and MSMEsOn October 9, 2020, during a Bi-Monthly Monetary Policy Committee (MPC) 2020-2021 meeting Reserve Bank of India (RBI) announced to conduct on-tap targeted long-term repo operations (TLTRO) worth Rs 1 lakh crore with tenors of up to three years at a floating rate linked to the policy repo rate till March 31, 2021. Click Here to Read 

  • Then on October 21, 2020, the apex bank has informed that banks can deploy money drawn from this TLTRO in five sectors – agriculture, agri-infrastructure, secured retail, MSMEs (Ministry of Micro, Small & Medium Enterprises), drugs, pharmaceuticals and healthcare.
  • Notably, liquidity availed by banks under the scheme has to be deployed in corporate bonds, commercial paper and non-convertible debentures issued by the entities in specific sectors.  It can also be used to extend loans and advances to these sectors

The operational details of the On Tap TLTRO scheme are as follows,

  • All banks eligible under the Liquidity Adjustment Facility (LAF) can participate in the Scheme.
  • The Scheme will be operationalised on tap. Banks can place requests for funds. The Reserve Bank will aggregate all such requests received and release funds every Monday (on the subsequent working day if Monday is a holiday) by initiating a 3-year repo contract with the requesting bank.
  • If a bank places multiple requests during the week, all such requests will be aggregated, and a single repo contract will be created on the date of operation.
  • In case the requested amount exceeds the remaining amount under the scheme on the date of operation, the remaining amount will be distributed on pro-rata basis among all the eligible requests.
  • The Reserve Bank reserves the right to decide the quantum of allotment and / or accept/reject any or all the requests, either wholly/partially, without assigning any reason thereof.

NBFC wrote to RBI to include them as beneficiaries to on-tap TLTRO

The above mentioned TLTRO has not covered Non-banking financial companies (NBFCs),  therefore Finance Industry Development Council (FIDC), a representative body of (NBFCs) wrote a letter to the RBI Governor Shaktikanta Das asking for the same.

  • NBFCs can act as a force-multiplier by joining hands with the banking system in expanding the credit reach to various sectors

What are targeted long-term repo operations (TLTRO)?

  • TLTRO is a tool that lets banks borrow one to three-year funds from the central bank at the repo rate, by providing government securities with similar or higher tenure as collateral.The money borrowed by the banks under this scheme has to be deployed in investment-grade corporate bonds, commercial paper, and non-convertible debentures. So it is same as LTRO that should be targeted towards investment-grade corporate bonds, commercial paper, and non-convertible debentures. 

Recent Related News:

i.On July 09, 2020, According to data from the Reserve Bank of India (RBI), Tamil Nadu (TN) has topped market borrowings among States in India with a collection of Rs. 30,500 crores in the fiscal 2020-21(FY 21).

ii.RBI provided a USD 400 million currency swap facility for Sri Lanka, valid till November 2022. This will help Sri Lanka to meet its short-term international liquidity requirements and to boost its foreign exchange reserves amid COVID-19.

About Reserve Bank of India (RBI):
Headquarters– Mumbai, Maharashtra
Formation– 1 April 1935
Deputy Governors– 4 (Bibhu Prasad Kanungo, Mahesh Kumar Jain, Michael Debabrata Patra, M. Rajeshwar Rao)