RBI announces Rs 1 trn 'on tap' TLTRO to enable banks to provide liquidity

The Reserve Bank on Wednesday announced an 'on tap' Targeted Long-Term Repo Operations (TLTRO) scheme of up to Rs 1 trillion to enable banks to provide liquidity support to a host of sectors, including agriculture, retail, drugs and pharmaceuticals and MSMEs.

"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)," the RBI said.

Securities acquired by the banks with the intention to hold them up to maturity are classified under 'held to maturity (HTM)'.

RBI in its Statement of Developmental and Regulatory Policies, which was issued with the bi-monthly monetary policy review on October 9, announced that it would conduct on tap TLTRO of up to three years tenor for a total amount of up to Rs 1 trillion at a floating rate linked to the policy repo rate.

All banks eligible under the Liquidity Adjustment Facility (LAF) can participate in the scheme.

Liquidity availed by banks under the scheme has to be deployed in corporate bonds, commercial paper and non-convertible debentures issued by entities in sectors like agriculture; agri-infrastructure; secured retail; MSMEs; and drugs, pharmaceuticals and healthcare -- over and above the outstanding level of their investments in such instruments as on September 30, 2020.

"Liquidity availed under the scheme can also be used to extend loans and advances to these sectors,' the RBI added.

The scheme will remain operational from October 22, 2020 till March 31, 2021.

Meanwhile, in another notification, the RBI provided banks an option of repaying the funds availed under TLTRO and TLTRO 2.0 before maturity.

TLTRO and TLTRO 2.0 were conducted earlier this year.

LTRO is a tool that lets banks borrow one to three-year funds from the central bank at the repo rate. It is called 'Targeted' LTRO when the funds are specifically invested in investment-grade corporate debt.