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Business News/ Market Analytics / TLTRO extension to stressed sectors unlikely to find takers
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TLTRO extension to stressed sectors unlikely to find takers

Banks have been parking excess liquidity of more than ₹6.5 trillion at the central bank’s reverse repo window on a daily basis
  • At present, liquidity availed by banks under the on-tap TLTRO scheme is deployed in corporate bonds, commercial paper and non-convertible debentures
  • The system has been flush with liquidity with RBI injecting as much as ₹5.38 trillion through forex purchase, open market operations and TLTROs (REUTERS)Premium
    The system has been flush with liquidity with RBI injecting as much as 5.38 trillion through forex purchase, open market operations and TLTROs (REUTERS)

    The Reserve Bank of India’s (RBI’s) recent move to extend the on-tap targeted long-term repo operations (TLTRO) to stressed sectors identified by the K.V. Kamath Committee is unlikely to find any takers because of poor credit demand despite surplus liquidity in the system.

    Banks have been parking excess liquidity of more than 6.5 trillion at the central bank’s reverse repo window on a daily basis, which is more than the liquidity of 1 trillion made available by the RBI under the on-tap TLTRO.

    The system has been flush with liquidity with RBI injecting as much as 5.38 trillion through forex purchase, open market operations and TLTROs during the first half of the fiscal year.

    More than half of this liquidity was infused through long-term repo operations (LTRO) and a series of TLTROs.

    Given the surplus liquidity and decline in short-term rates, banks have already repaid funding availed from RBI under various LTROs. The outstanding against the past TLTROs stand at 77,000 crore against the total TLTRO and LTRO of 3.5 trillion.

    At present, liquidity availed by banks under the on-tap TLTRO scheme is deployed in corporate bonds, commercial paper and non-convertible debentures issued by the entities in five specific sectors over and above the outstanding level of their investments in such instruments as on 30 September. The sectors are agriculture, agri infrastructure, secured retail, micro, small and medium enterprises and drugs, pharmaceuticals and healthcare. RBI has now allowed the extension of on-tap TLTRO to 26 stressed sectors, such as hotels, construction and power, with credit outstanding of between 50 crore and 500 crore, which are eligible for credit guarantee under the Emergency Credit Linked Guarantee Scheme (ECLGS 2.0).

    “Only those banks that are short of funds will tap the liquidity under TLTRO. PSU banks are sitting on excess liquidity. Banks have already repaid funds availed under TLTRO and shifted their investments in bonds to the available for sale (AFS) category, which allows these banks to sell these bonds at the opportune time," said the treasury head of a large public sector bank, seeking anonymity.

    Banks are also unlikely to go for these funds as credit demand is very poor. Growth in non-food credit slipped to 5.15% year-on-year (y-o-y) during the fortnight ended 23 October from 5.68% in the previous fortnight, according to RBI data.

    Much of banks’ credit growth since May was supported by disbursements under the ECLGS scheme, which has been extended further to 31 March 2021. As of October, disbursements under the ECLGS scheme stood at 1.52 trillion, which is higher than the gross bank credit growth of 1.2 trillion (in absolute terms from May to October).

    Care Ratings in its recent report said the overall credit growth is expected to remain slow in the near term as banks are being selective in giving fresh loans because of concerns over asset quality.

    “Credit deposit demand, which is going to be driven by industry optics, will be the prime driver and not necessarily the cost of funds, which is what the on-tap TLTRO will eventually administer," said the treasury head of a private sector bank, also requesting anonymity.

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    Published: 09 Dec 2020, 05:33 AM IST
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