RBI to conduct on-tap TLTRO worth Rs 1 trillion to nudge credit growth

The TLTRO will be for tenors of up to three years and for a total amount of up to Rs 1 trillion at a floating rate linked to the policy repo rate for banks

The Reserve Bank of India (RBI) will provide banks on-tap funds up to Rs 1 trillion to give loans to sectors having multiplier effects on growth. The sectors, which could benefit from this move, include construction, real estate, and micro finance.  

RBI will provide these funds under on-tap targeted long-term repo operations (TLTRO) at floating rate linked to the policy rate for up to three years. At present, the repo rate is 4 per cent.

For the time being, the scheme will be available till March 31, 2021. However, the RBI has retained flexibility to enhance the amount and period after review of the response to the scheme.

RBI Governor Shaktikanta Das said the focus would  include revival of activity in specific sectors that have both backward and forward linkages, and multiplier effects on growth. According to Krishnan Sitaraman, senior director, CRISIL Ratings, this should enhance funding availability for companies as economic activity picks up in the second half of the year. 

The last TLTRO scheme had enabled “BBB” and “A” rated entities to access funding through bonds, which was otherwise challenging for them.  On-tap TLTRO will definitely help ease credit availability for the real estate sector and address the liquidity issue being faced for a while, said Sanjay Dutt, MD & CEO, Tata Realty and Infrastructure. Vikas Oberoi, chairman and MD, Oberoi Realty, said, “Will wait for further guidelines on this and take it forward. Looks like our cost of borrowing will come down.”

The RBI has said, under the scheme, banks can also extend loans and advances to these sectors.

Experts believe this move will bring liquidity to small and medium-sized non-banking financial companies (NBFCs) and housing finance companies (HFCs).  This facility is useful to financial sector firms that may not have been able to get funds under the special liquidity scheme or the previous TLTROs.  

S S Mallikarjuna Rao, MD & CEO, Punjab National Bank, said: “The on-tap TLTRO will go a long way to improve lending as we are looking at a strong economic recovery in the coming days.”