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The Reserve Bank of India (RBI) received overwhelming response to its maiden three-year long-term repo operation (LTRO) auction on Monday, with banks bidding almost eight times more than the notified amount of ₹25,000 crore.
On February 6, the central bank had announced that it would conduct LTRO aggregating ₹1-lakh crore at the policy repo rate of 5.15 per cent to inject durable liquidity into the banking system and to ensure transmission of monetary policy changes into lending rates.
Total amount of bids
The total amount of bids at ₹1,94,414 crore has, in fact, exceeded the aggregate amount of ₹1-lakh crore proposed to be offered under the LTRO scheme. This bidding shows that banks have a good appetite for long-term funds at the repo rate.
The RBI received 63 bids aggregating ₹1,94,414 crore, against the notified amount of ₹25,000 crore. The amount allotted in the current LTRO auction was ₹25,035 crore.
“The response to the LTRO has been highly encouraging. The total bids that were received amounted to ₹1,94,414 crore, implying a bid to cover ratio (that is, the amount of bids received relative to the amount announced) of 7.8,” the RBI said in a statement.
Banks will find raising resources via LTRO cheaper vis-a-vis deposits. While they get three-year money via LTRO at 5.15 per cent, on a three-year deposit, banks will have to pay about 6.10 per cent. So, there is an arbitrage of almost 100 basis points.
The RBI will follow up this LTRO auction with another one for one-year duration for ₹25,000 crore on February 24. To augment credit flow to productive sectors and support growth, which slipped to 4.5 per cent in the second quarter, the RBI unveiled the LTRO facility in its sixth bi-monthly monetary policy review on February 6.
As per the operational guidelines for LTROs, the operations conducted under this scheme will be in addition to the existing Liquidity Adjustment Facility (LAF) and Marginal Standing Facility (MSF) operations. The total amount of liquidity injected through these operations will be up to ₹1 lakh crore.
The minimum bid amount in LTRO auction is ₹1 crore and multiples thereof. The allotment is in multiples of ₹1 crore. There is no restriction on the maximum amount of bidding by individual bidders. In the case of over-subscription of the notified amount, the allotment is done on pro-rata basis. The RBI, however, reserves the right to inject marginally higher amount than the notified amount due to rounding effects.
The eligible collateral for LTROs and the applicable haircuts remain the same as applicable for the liquidity adjustment facility.
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