PremiumMUMBAI: The targeted long-term repo operations (TLTRO) of the central bank helped ease liquidity stress being faced by non-bank financiers post covid-19, according to an analysis by the Reserve Bank of India (RBI).
The results, published in its August bulletin, showed that the policy helped non-banking financial companies (NBFCs) navigate the tough times, especially since both markets and banks were not forthcoming in lending to them of their own accord.
Non-bank lenders who received funds through the TLTRO scheme were facing stress in some short-term asset liability management (ALM) buckets in the immediate aftermath of pandemic and those buckets witnessed improvement after the implementation of the policy as they repaid their extant liabilities.
As NBFCs were finding their footing after the IL&FS default, the covid-19 pandemic started a chain of adverse reactions which exacerbated liquidity crunch.
The central bank and the government announced a set of policy measures to salvage the situation, one of which was the TLTRO scheme, aimed at providing targeted liquidity to sectors and entities which were experiencing liquidity constraints. Under the scheme, banks were provided funds at repo rate and were directed to invest in investment grade papers of corporates, including NBFCs.
“RBI added Long Term Repo Operations (LTROs) to its arsenal in February 2020 to ensure availability of liquidity as well as transmission of rates. Under LTROs, the Reserve Bank provides longer term loans usually of one-three year maturity to banks at a floating rate linked to the policy repo rate on the back of government securities as collateral which enables banks in lending more to the real economy," it said.
When covid-19 struck, it introduced TLTRO to provide targeted liquidity to sectors and entities experiencing liquidity pressures. The operations were undertaken in two phases. Under TLTRO 1.0, announced on 27 March 2020, RBI conducted four auctions in tranches of Rs25,000 crore each, amounting to a total of ₹1 trillion. The tenor was up to three years at a floating rate linked to the policy repo rate. TLTRO 2.0 was announced on 17 April 2020 which sought to address liquidity constraints faced by small and mid-sized corporates, including NBFCs and micro finance institutions (MFIs). Under TLTRO 2.0, a sum of ₹50,000 crore was to be made available at policy repo rate for tenors up to three years.
“The distribution of TLTRO funds under the first two phases suggests that Rs61,586 crore were disbursed to NBFCs and Housing Finance Companies (HFCs), of which 60% were obtained by NBFCs," it said.
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