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So far in this financial year, outstanding credit has shrunk by  ₹1.14 trillion, shows RBI data. (BHARAT-HT)
So far in this financial year, outstanding credit has shrunk by 1.14 trillion, shows RBI data. (BHARAT-HT)

On-tap window to boost credit flow

Banks can borrow up to 1 trillion for debt investments, corporate bonds

MUMBAI: To push credit flow into the economy, the Reserve Bank of India (RBI) on Friday said it will introduce an on-tap window for banks to borrow up to 1 trillion and invest in corporate bonds and other debt instruments of companies in certain sectors. While RBI has conducted targeted long-term repo operations (TLTRO) in the past, this time banks will be able to use the money not just for debt investments, but also for corporate loans.

“The focus of liquidity measures by RBI will now include revival of activity in specific sectors that have both backward and forward linkages, and multiplier effects on growth," said RBI governor Shaktikanta Das.

Bank lending has been sluggish for a while now, closely tracking the economic downturn. Non-food credit grew just 5.11% year-on-year as on 25 September to 102 trillion, but so far in this financial year, outstanding credit has shrunk by 1.14 trillion, showed data from the RBI. Most of the loan growth came from the retail sector, which grew 10.6% y-o-y to 25.48 trillion as on 28 August, compared to the 0.5% y-o-y growth to 27.78 trillion in loans to industries.

Das said the on-tap TLTROs will have tenures of up to three years at a floating rate linked to the policy repo rate and the scheme will be available till 31 March. The total amount available under this window can be enhanced based on a review of the response, he said.

According to Das, 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. Experts lauded the move of allowing banks to use the proceeds from this special window to lend to corporates, and not just invest in their debt securities.

Anil Gupta, vice-president and sector head (financial sector ratings), Icra, said the flexibility to deploy TLTRO money as loan and advance, in addition to bonds and commercial papers, as per the earlier guidelines, can aid in higher utilization of the limits.

That apart, the central bank also allowed banks more headroom to lend, by exempting exposures under this facility for the purpose of large exposure framework norms, which seeks to reduce concentration risk in the banking industry, which is already saddled with bad loans.

The on-tap TLTRO will go a long way to improve lending as we are looking at a strong economic recovery in the coming days, said S.S. Mallikarjuna Rao, chief executive, Punjab National Bank.

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