Banks can deploy on-tap TLTRO funds in agriculture, retail and MSMEs: RBI

The Reserve Bank of India on Wednesday said that banks can deploy money drawn from Rs 1 trillion on-tap targeted long term repo operations (on-tap TLTRO) in six sectors - agriculture, agri-infrastructure, secured retail, MSMEs, and drugs, pharmaceuticals and healthcare.

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.

On tap TLTROs are intended to enable banks to conduct their operations smoothly and seamlessly without being hindered by illiquidity frictions. This was done 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, RBI had said in early this month.

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 under this facility 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.