In a continuing effort to provide liquidity support to various economic sectors and banks, RBI Governor Shaktikanta Das today announced an ‘On Tap TLTRO’ scheme worth Rs 1 lakh crore. The focus of liquidity measures by the RBI will now include the revival of activity in specific sectors that have both backward and forward linkages and multiplier effects on growth, RBI added. It has been decided to conduct on tap TLTRO with tenors of up to three years for a total amount of up to Rs 1 lakh crore at a floating rate linked to the policy repo rate, it further said. The scheme will be available till the end of the current fiscal year 2020-21 with the flexibility to the enhancement of the amount and period after a review of the response to the scheme.
It is to be noted that the liquidity availed by banks under the scheme has to be deployed in corporate bonds, commercial papers, and non-convertible debentures issued by the entities in specific sectors over and above the outstanding level of their investments in such instruments as on 30 September 2020. RBI said that the liquidity availed under the scheme can also be used to extend bank loans and advances to these sectors. Moreover, banks that had availed of funds earlier under targeted long-term repo operations (TLTRO and TLTRO 2.0) have the option of reversing these transactions before maturity.
Between February 6 and September 30, TLTRO and TLTRO 2.0 schemes worth Rs 1.5 lakh crore have been announced. Boosted by TLTROs, non-SLR investments of banks (comprising investments in CPs, bonds, debentures and shares of public and private corporates) have increased by 1.8 per cent in H1 FY21, compared to a decline of 3.9 per cent in the same period last year.
“For the first time since COVID, the Governor’s statement has a sense of tides turning. While the real impact is yet to be seen, the on-tap TLTRO and easing of contraction in certain sectors seem to indicate winds of change,” said Veena Sivaramakrishnan, Partner, Shardul Amarchand Mangaldas & Co. The Reserve Bank further underlined that considering the borrowing requirements of the centre and states in the second half of the current fiscal and the likely pick-up in demand for credit as the recovery gathers strength, on tap TLTROs are intended to enable banks to conduct their operations smoothly and seamlessly without being hindered by illiquidity frictions. The move is made to ensure that liquidity in the system remains comfortable. However, the details of the scheme are yet to be announced.