The Reserve Bank of India (RBI) on Friday said banks can exercise the option of reversing Long-Term Repo Operation (LTRO) transactions, whereby they availed themselves of funds between February 17, 2020 and March 18, 2020, through a repayment exercise which will be spread over five days, beginning September 14, 2020.
The RBI infused liquidity aggregating ₹1,25,117 crore by conducting five LTRO transactions funds between February 17, 2020 and March 18, 2020 at the then prevailing policy repo rate of 5.15 per cent in a bid to improve monetary policy transmission.
By exercising the option of reversing LTRO transactions before maturity, banks can reduce their cost of funds as the policy repo rate has come down to 4 per cent.
“The banks may reduce their interest liability by returning funds taken at the repo rate prevailing at that time (5.15 per cent) and availing funds at the current repo rate of 4 per cent,” the RBI said on August 31, 2020, when it announced “Measures to Foster Orderly Market Conditions.”
Term Repo auctions
Meanwhile, the RBI announced that it will conduct two 56-day Term Repo auctions of ₹50,000 each on September 11, 2020 and September 14, 2020 at the policy repo rate prevailing at the time of the auction. But the interest rate would be floating — it will reset with each change in policy repo rate during the tenor of the operation, it added.
The Term Repo auctions are being conducted to assuage pressures on the market on account of advance tax outflows.