RBI announces Rs 1 Lakh Crore on-tap TLTRO to revive economic activity in key sectors
As part of efforts to revive economic activity in specific sectors and maintain liquidity flows in the financial markets, the Reserve Bank of India on Friday decided to conduct a Rs 1 lakh crore on-tap Targeted Long-Term Repo Operations (TLTRO).
The Reserve Bank of India (RBI) in its late March policy action introduced the TLTROs as a tool to enhance liquidity in the system, particularly the corporate bond market, in the wake of the Covid-19 crisis.
RBI governor Shaktikanta Das said that fresh TLTROs will focus on providing liquidity support for revival of activity in specific sectors that have both backward and forward linkages, and multiplier effects on growth.
Accordingly, it has been decided liquidity availed by banks under the scheme has to be deployed in corporate bonds, commercial papers, and non-convertible debentures issued by the entities in specific sectors over and above the outstanding level of their investments in such instruments as on September 30, 2020.
The Rs 1 lakh crore TLTROs will be available for tenors of up to three years issued at a floating rate linked to the policy repo rate. The scheme will be available up to March 31, 2021 with flexibility with regard to enhancement of the amount and period after a review of the response to the scheme.
The liquidity availed under the scheme can also be used to extend bank loans and advances to identified sectors. Investments made by banks under this facility will be classified as held to maturity (HTM) even in excess of 25 per cent of total investment permitted to be included in the HTM portfolio.
All exposures under this facility will also be exempted from reckoning under the large exposure framework (LEF).
Moreover, banks that had availed of funds earlier under targeted long-term repo operations (TLTRO and TLTRO 2.0) have the option of reversing these transactions before maturity.
In view of the borrowing requirements of the Centre and states in the second half of 2020-21 and the likely pick-up in demand for credit as the recovery gathers strength, on-tap TLTROs are intended to enable banks to conduct their operations smoothly and seamlessly without being hindered by illiquidity frictions, the RBI governor said.