Left out of on-tap TLTRO benefits, NBFCs approach RBI for inclusion

After being left out as a beneficiary of the on-tap targeted long-term repo operations (TLTRO), non-banking financial companies (NBFCs) have requested the Reserve Bank of India (RBI) to allow banks to use money drawn from this liquidity window for lending to them.

Along with its monetary policy review, the RBI had earlier this month announced an on-tap TLTRO scheme to ensure that credit reaches the deserving sectors of the economy. While sectors including agriculture, MSME and retail are covered, NBFCs have not been included as a beneficiary of the facility, Finance Industry Development Council (FIDC) said in a communication to RBI.

Banks can deploy money drawn from Rs one trillion on-tap TLTRO in six sectors - agriculture, agri-infrastructure, secured retail, MSMEs, and drugs, pharmaceuticals and healthcare.

FIDC said NBFCs are conduits for reaching out last-mile credit to the aforementioned crucial sectors. They borrow only for on-lending and hence can act as a force-multiplier and expand the credit reach to various sectors. Allowing banks to permit NBFCs to access these funds for the targeted lending to the desired segments would significantly facilitate meeting the objectives, the lobby group said.

The group suggested carving out a part of the On-Tap TLTRO funds for the NBFCs including small NBFCs to avail of loans from banks for on-lending to the desired sectors only. RBI will conduct on tap TLTRO with tenors of up to three years for up to Rs one trillion. This on-Tap money will be available at a floating rate linked to the policy repo rate.

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. Liquidity availed under the scheme can also be used to extend loans and advances to these sectors, the RBI said in guidelines issued for the scheme.

In order to entice banks to use this facility, the RBI has relaxed some rules for investment and loans granted from the on-tap TLTRO funds. Investments made by banks using on-tap TLTRO funds will be classified as held to maturity (HTM) even in excess of 25 per cent of the total investment allowed to be included in the HTM portfolio.

All exposures under this facility will also be exempt from reckoning under the large exposure framework (LEF). Further, banks that had availed of funds under TLTRO and TLTRO 2.0 earlier will get the option of reversing these transactions before maturity.