The Reserve Bank of India (RBI) on Friday expanded on its liquidity measures to make the targeted long term repo operations (TLTRO) available on tap and extend the use of money raised under this window to loans given by banks. Industry executives and analysts said while the expanded scheme is meant to enable smaller firms to access funds, details on eligibility will be key. The new format is also aimed at leaving banks with few excuses to not lend aggressively, NBFC chiefs said.
RBI governor Shaktikanta Das said that the central bank will conduct on-tap TLTROs 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. The scheme will be available up to March 31, 2021, with flexibility with regard to enhancement of the amount and period after a review of the response to the scheme. Liquidity availed by banks under the scheme has to be deployed in corporate bonds, commercial papers, loans and non-convertible debentures issued by entities in specific sectors over and above the outstanding level of their investments in such instruments as on September 30, 2020.
The move is likely to prove useful for banks who have excess statutory liquidity ratio (SLR) holdings as they will be able to pledge these securities to take out funds for lending, said Anil Gupta, vice-president & sector head – financial sector ratings, Icra. “We will also await measures that ensure that money is well distributed across borrowers in different rating categories, especially AA and below rated companies,” Gupta said. The other thing to watch would be whether the TLTRO funds are used for fresh lending or reversal of existing borrowing, said Care Ratings. Heads of non-banking financial companies (NBFCs) said the RBI’s action seeks to get rid of risk aversion in the system.
VP Nandakumar, MD & CEO, Manappuram Finance, said the RBI is doing its best to dispel the whole atmosphere of uncertainty which gives rise to unwarranted risk aversion by banks. Umesh Revankar, MD and CEO, Shriram Transport Finance, said the RBI is making it clear that liquidity is available as long as banks are willing to take risks. “So they don’t want to leave any bank with an excuse. The risk aversion is likely to change because ultimately banks also have to grow.” Some non-bank lenders expressed scepticism about the effectiveness of the scheme.
Aiswarya Ravi, CFO, Kinara Capital, said one must wait to see what the eligible sectors under this scheme are. Funds from the previous avatars of the LTRO and TLTRO did not flow down to lower-rated NBFCs. “Another point to note is that though the window has been opened till March 2021, it is a boon and a bane… (the deadline) is so far out that it creates no urgency for banks to extend the funds in time to serve the post-Covid recovery,” Ravi said. TT Srinivasaraghavan, managing director, Sundaram Finance, explained that the real problem with liquidity-boosting measures has been the fact that they exclude small companies, many of whom are not rated at all. “When you look at the smaller NBFCs, there you have a serious problem because capital markets are closed to them, the external commercial borrowing market is closed to them and insurance companies are closed to them,” he said.
