Home / Industry / Banking /  Banks' tepid response to RBI's 25,000-crore TLTRO 2.0 for NBFCs

MUMBAI: Lenders on Thursday bid for and borrowed 12,850 crore or a little more than half of what was on offer, 25,000 crore, from the Reserve Bank of India’s (RBI) first tranche of targeted long-term repo operation window, or TLTRO 2.0.

The central bank, in a notification, said total bids that were received amounted to 12,850 crore. This implied a bid to cover ratio, the amount of bids received relative to the notified amount, of 0.5. The RBI had offered 25,000 crore to banks at the current repo rate of 4.4% for lending to non-banking financial companies (NBFCs) and micro-finance institutions (MFIs).

The subdued response could indicate banks’ reluctance to invest in non-banks and micro-finance firms. The last round of TLTROs of 1 trillion, where banks were allowed to deploy the money in investment grade corporate bonds, commercial paper (CP) and non-convertible debentures (NCDs), saw a more avid interest from lenders.

To ease the flow of credit into the NBFC sector, who have been refused a three-month moratorium by most banks, the RBI had announced 50,000 crore of TLTRO 2.0 in tranches “to begin with".

RBI Governor Shaktikanta Das, on 17 April, had said funds availed by banks under TLTRO 2.0 should be put into investment grade bonds, CP and NCDs of NBFCs, with at least 50% of the total amount availed going to small and mid-sized NBFCs and MFIs.

Of the total amount borrowed under this special window, banks have to invest 10% in securities of MFIs, 15% in bonds of NBFCs with asset size of 500 crore and below, and 25% in bonds of NBFCs with assets size between 500-5,000 crore. On 21 April, RBI had extended the deadline for banks to invest these funds by 15 working days from the auction.

“Based on the feedback received from banks and taking into account the disruptions caused by covid-19, it has been decided to extend the time available for deployment of funds under the TLTRO 2.0 scheme from 30 working days to 45 working days from the date of the operation," it said.

However, if banks fail to invest the TLTRO 2.0 funds within 45 days, they will have to pay a penal interest rate of 200 basis points (bps) every day, over and above the repo rate.

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