What is RBI's 'on-tap TLTRO' scheme worth Rs 1 trillion?

The RBI announced that it will introduce on tap funds up to Rs 1 trillion to push credit flow into the economy.
Created On: Oct 15, 2020 13:00 IST
Modified On: Oct 15, 2020 13:10 IST
TLTRO Scheme
TLTRO Scheme

On Friday, the Reserve Bank of India (RBI) announced that it will introduce on-tap funds up to Rs 1 trillion to push credit flow into the economy. Construction, real estate, micro-finance, etc. will benefit from this move. 

As per RBI Governor Shaktikanata Das, the RBI will focus on the revival of activity in specific sectors having both backward and forward linkages. 

Key Highlights:

1- To enhance liquidity, RBI will provide banks with on-tap funds up to Rs 1 trillion under TLTRO. 

2- The scheme will be available for till March 31, 2021. 

3- The liquidity availed by banks under this scheme has to be deployed in corporate bonds, commercial papers and non-convertible debentures (NCDs) issued by entities in specific sectors over and above the outstanding level of their investments in such instruments as on 30 September.

4- The TLTROs will be available for a period of up to three years at a floating rate, linked to the policy. The total amount available under this scheme can be enhanced based on a review of the response of the scheme. 

5- Earlier, the banks could only use the money provided by RBI for debt investments, but now the banks can also use this money for giving corporate loans. 

Need for the scheme

1- Amid the pandemic, bank lending has been flattened, resulting in an economic downturn. 

2- On September 25, non-food credit grew 5.11% year-on-year to Rs. 102 trillion. 

3- As per data revealed by the RBI, outstanding credit has been shrunk by  Rs. 1.14 trillion. 

2- The loan growth was mostly from the retail sector, growing 10.6% year-on-year to ₹25.48 trillion as on 28 August, compared to the 0.5%year-on-year growth to ₹27.78 trillion in loans to industries.

Will it help in boosting the economy?

The scheme will now allow the banks to lend to corporates. Earlier, banks could only invest in their debt securities. The scheme will aid in higher utilization of the funds. This will bring liquidity to small and medium-sized non-banking financial companies (NBFCs) and housing finance companies (HFCs) and is useful to financial sector firms that couldn't get funds under the previous TLTROs.

What is LTRO?

Under Long Term Repo Operations (LTRO), banks can borrow up to three-year funds from RBI at repo rate. The current repo rate is 4%. It is used to inject liquidity in the market and enhance the cash flow in the economy. 

What is TLTRO?

Under Targeted Long Term Repo Operations (TLTRO), banks can invest in specific sectors through debt instruments (corporate bonds, commercial papers and non-convertible debentures (NCDs)) to push the credit flow in the economy. 

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