Just 2.1% of TLTRO funds went to NBFCs that needed them most: RBI report

Whole idea of launching TLTRO funds was to provide system level and targeted liquidity to sectors with liquidity constraints--something banks clearly did not do, shows Trend and Progress Report

Banks deployed more than 70 per cent money raised through targeted long-term repo (TLTRO) in papers issued by AAA-rated non-banking finance companies (NBFC), defeating the very purpose of the special liquidity operations.  

The top-rated NBFCs did not need special assistance from the RBI or banks. They had enough access to the debt markets and had a comfortable liquidity position. The whole idea of launching the TLTRO funds, in various batches, was to provide system level liquidity as well as “targeted liquidity to sectors and entities experiencing liquidity constraints and restricted market access.” 

Clearly, banks did not do it, data released by RBI’s Trend and Progress Report showed.  

The RBI extended Rs 1.12 trillion through TLTROs for banks to lend to NBFCs and small and medium enterprises. Of this, Rs 76,843 crore were requested by NBFCs and housing finance companies (HFCs), four-fifth of which has been disbursed.

NBFCs garnered 60 per cent of the total disbursement. Non-deposit taking NBFCs, particularly NBFCs-ND-SI (systemically important), have been major beneficiaries of this. NBFCs-ND-SI, which accessed TLTRO funding, constitute 57.4 per cent of the NBFC universe. These firms also had lower GNPA ratios and were better capitalised than other NBFCs-ND-SI, according to the RBI.  

As per the data available with RBI, 70.3 per cent of the funds disbursed to NBFCs went to AAA rated firms, 17.7 per cent went to AA and 9.9 per cent went to NBFCs rated ‘A’. NBFCs with ratings of BBB and below received just 2.1 per cent of the TLTRO funds. But this group needed the TLTRO fund the most. 

The same is the case with other liquidity schemes too. The government also launched a Rs 30,000 crore liquidity scheme to facilitate short-term debts through a special purpose vehicle. 

“Large, well rated NBFCs have garnered the bulk of funds via the TLTRO route. Under the Special Liquidity Scheme (SLS), '7,126 crore was disbursed, mainly via commercial papers (CPs), of which 53 per cent went to NBFCs and rest to Housing Finance Companies (HFCs),” the RBI report said. “As in the case of TLTRO, investments via the SLS route were also in well-rated CPs and NCDs," the report noted. 

Within NBFCs-ND-SI, Investment and Credit companies (NBFCs-ICC) and Infrastructure Finance Companies (IFCs) cornered 88 per cent of the funds.  

“Furthermore, a rating-wise analysis shows that these firms were also well-rated, with AAA and AA rated firms accessing 88 per cent of disbursements.”  

Soumyajit Niyogi, associate director of India Ratings and Research, did not see a cause for alarm. Rather, if the liquidity was not provided for, then the larger firms would have cornered whatever was available anyway. 

“First, TLTRO acted as a market clearing force. Since larger entities had more loanable funds, it didn't allow crowding out amid crisis time. Therefore, indirectly it had facilitated room for lower rated entities, which wouldn't have been possible. Second, TLTRO has successfully restored conducive sentiment in the funding market during the crisis period," said Niyogi.