RBI’s ₹1-lakh crore long-term repo operation will push credit growth, say analysts

The ‘on-tap’ targeted long-term repo operation (TLTRO), which the Reserve Bank of India (RBI) will conduct, for a total amount of up to ₹1-lakh crore can help push up credit growth, according to experts.

As exposure under the scheme is exempt from LEF (large exposure framework) norms, this will open up more investment opportunities for banks, according to State Bank of India’s research report “Ecowrap”.

“The ₹1-lakh crore on-tap TLTRO window is a good measure by RBI, especially ahead of festival season...The previous TLTROs were intended to remove mismatches in liquidity or their (non-banking finance companies and microfinance institutions) asset liability, whereas this window will open avenues for lending and help create demand in the festival season,” said CH SS Mallikarjuna Rao, MD & CEO, Punjab National Bank.

Banking expert V Viswanathan opined that banks which availed themselves of the facility in February and March 2020, when the repo rate was at 5.15 per cent and 4.40 per cent respectively, might well come forward to avail themselves of the new (on tap TLTRO) scheme as the current repo rate is 4 per cent.

According to Ecowrap, since February 6, RBI has conducted ₹2-lakh crore worth LTRO, ₹1 lakh crore worth TLTRO and ₹50,000 crore worth of TLTRO (2.0). All this has improved the system liquidity.

Credit offtake anaemic

The on tap TLTRO comes in the backdrop of bank credit offtake being anaemic during the first half (H1) of FY21.

According to RBI, this reflects weak demand and uncertainty in the wake of the pandemic.

Non-food credit growth (y-o-y) at 5.1 per cent as on September 25, 2020 was lower than 8.6 per cent a year ago, driven by weak momentum and base effects.

Boosted by TLTROs, non-SLR investments of banks (comprising investments in Commercial Papers (CPs), bonds, debentures and shares of public and private corporates) increased by 1.8 per cent in H1:2020-21 as against a decline of 3.9 per cent in H1:2019-20, the central bank said.

On tap TLTRO

To revive activity in specific sectors that have both backward and forward linkages, and multiplier effects on growth, the RBI on October 9 announced that it will conduct on tap TLTRO with tenors of up to three years for a total amount of up to ₹1-lakh crore at a floating rate linked to the policy repo rate.

Banks that had availed themselves of funds earlier under targeted long-term repo operations (TLTRO and TLTRO 2.0) will be given the option of reversing these transactions before maturity.

Liquidity utilised 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 September 30, 2020.

The liquidity availed under the scheme can also be used to extend bank loans and advances to these sectors.

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).

Rules tweaked

Viswanathan observed that TLTRO 2.0 could not take off due to non-availability of adequate investment grade instruments in MFIs and NBFCs with asset size of less than ₹5,000 crore. To overcome this lacunae, RBI has permitted to deploy the ‘on tap TLTRO’ in loans and advances, to the sectors to be specified, as well.

He suggested that under the specific sector to be named or otherwise, any additional or fresh financing by the banks to large industries/Public Sector Enterprises for clearing their overdue payable to MSMEs, should be made eligible for making use of the ‘on tap TLTRO’.

(With inputs from Our Delhi Bureau)

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