MUMBAI: The Reserve Bank of India (RBI) said on Friday that it will introduce long-term repurchase operations (TLTROs) available for banks to borrow up to ₹1 trillion from the window and invest in corporate bonds and other debt instruments of certain sectors.
Banks can also use these funds to make loans to entities in these sectors and this measure is expected to give some impetus to credit growth which has remained slow despite push from the government and the central bank.
“We propose to announce a TLTRO on tap. The focus of the RBI’s liquidity measures will now include reactivating activities in specific sectors that have both backward and forward linkages and a multiplier effect on growth, “said Shaktikanta Das, Governor of the RBI, announcing the policy statement. .
Das said that the available TLTROs will have maturities of up to three years at a floating rate linked to the policy’s buyback rate and the scheme will be available until March 31, 2021. The total amount available in this window can be improved based on of a review of the answer, he said.
“The liquidity available to banks under this scheme must be used in corporate bonds, commercial papers and non-convertible obligations (NCD) issued by entities in specific sectors above the pending level of their investments in such instruments as of September 30 “. Das said.
According to Das, banks that have previously made use of funds under the TLTRO and TLTRO 2 schemes will have the option to reverse these transactions before maturity.
“In light of the central and state borrowing requirements in the second half of fiscal 21 and the likely pickup in demand for credit as the recovery strengthens, the available TLTROs are intended to allow banks to make their Trades smoothly and without being hampered by liquidity frictions. The objective is to ensure that liquidity in the system remains comfortable, ”he said.
On Friday, the RBI kept the repurchase rate, the key interest rate it lends to commercial banks, unchanged at 4%. The central bank issued an ominous note on the country’s growth prospects, even as it echoed what credit rating agencies had previously warned about as well.
The RBI’s MPC has set real GDP growth for fiscal year 21 to contract at 9.5%.
The decision to keep interest rates unchanged is in line with market expectations, as inflation has remained above 6%, the highest end of the central bank’s medium-term objective.
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