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The Reserve Bank of India (RBI) has decided to bring the 26 stressed sectors – identified by the Kamath Committee – within the ambit of sectors eligible under on-tap Targeted Long-Term Repo Operations (TLTRO).
Further, the central bank encouraged banks to synergise on-tap TLTRO scheme and Emergency Credit Line Guarantee Scheme 2.0 (ECLGS 2.0) by availing funds from the RBI under the former and seek guarantee under the latter to provide credit support to stressed sectors.
Currently, liquidity availed by banks under on-tap TLTRO scheme is deployed in corporate bonds, commercial paper and non-convertible debentures issued by the entities in five specific sectors over and above the outstanding level of their investments in such instruments as on September 30.
The five sectors are: Agriculture; agri-infrastructure; secured retail; MSMEs; and drugs, pharmaceuticals and healthcare.
ECLGS 2.0
Liquidity availed under on-tap TLTRO can also be used to extend loans and advances to these sectors. ECLGS 2.0 has been launched by the government for healthcare sector and 26 stressed sectors with credit outstanding of above ₹50 crore and up to ₹500 crore as on February 29.
Under the ECLGS scheme, entities get additional credit up to 20 per cent of outstanding credit with a tenor of five years, including one-year moratorium on principal repayment. This scheme is available till March 31, 2021.
Rajkiran Rai, Chairman, Indian Banks’ Asociation, and MD and CEO, Union Bank of India, said extension of on-tap TLTRO to all the stressed sectors (identified in the Kamath Committee report), which are eligible for credit guarantee available under ECLGS 2.0, would encourage the flow of credit to these sectors.
“In fact, it is selectively augmenting the flow of resources to these needy sectors. This is indeed a positive measure,” he said.
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Anil Gupta, Vice-President, Sector Head, Financial Sector Ratings, ICRA, observed that given the surplus liquidity situation and decline in short-term rates below reverse repo rates, banks have significantly repaid the funding availed from the RBI under various LTROs.
“The outstanding against the past LTROs stood at ₹77,000 crore as on December 3against the total LTRO operations of ₹2.12-lakh crore.
“Hence, the availability of on-tap TLTRO funding to banks is unlikely to be an incremental incentive for banks from a funding point of view,” he said.
The Expert Committee on Resolution Framework for Covid-19 related Stress (headed by KV Kamath, former President of New Development Bank) recommended the required financial parameters to be factored in the resolution plans under the ‘Resolution Framework for Covid19 related Stress’, along with sector-specific benchmark ranges for such parameters.
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