Muted response to TLTRO 2.0 shows how hesitant banks are to invest in non-bank financiers and micro lenders
RIL raised ₹8,500 crore and is looking to raise another ₹3,000 crore via bonds. HDFC raised ₹2,500 crore
The Reserve Bank of India’s (RBI) attempts to provide liquidity to the market at low rates has hit a wall of risk aversion. Lenders on Thursday bid for and borrowed ₹12,850 crore, a little more than half of the ₹25,000-crore on offer from RBI’s second edition of targeted long-term repo operation (TLTRO 2.0), meant for liquidity support to smaller non-bank financiers and microfinance institutions. The lacklustre response was despite funds being made available at the repo rate of 4.4%.
In contrast, the latest data available from BSE showed high rated corporates raised ₹51,989 crore via primary issuance of bonds and commercial papers since the announcement of TLTRO 1.0 in March.
Risk aversion has become hard-wired in the credit market after a string of loan defaults over the past two years, despite RBI’s repeated liquidity injection and deep cuts in benchmark rates. The central bank, however, continues to inundate the market with cheap liquidity, in the hope that it will eventually lead to lower borrowing costs: on Thursday, it announced another round of Operation Twist, scheduled for 27 April, under which the central bank will buy ₹10,000 crore of long-dated government securities and simultaneously sell short-dated treasury bills under open market operations (OMO). The endeavour hopes to recalibrate the government’s risk-free yield curve.
The tepid response to TLTRO 2.0 shows how hesitant banks are to invest in non-bank financiers and microfinance institutions. In contrast, the last round of TLTROs of ₹1 trillion, where banks were allowed to deploy the money in investment grade corporate bonds, commercial paper, and non-convertible debentures, saw a more spirited response from lenders.
Vydianathan Ramaswamy, director, Brickwork Ratings, said the limited participation by banks in TLTRO 2.0 clearly means there will be no immediate liquidity relief to NBFCs and MFIs, especially the smaller ones.
“Given the lack of risk appetite in banks, a structure with partial credit guarantee by the government, similar to the partial credit guarantee (PCG) scheme launched last year for securitization, maybe the only viable option to ease liquidity challenges of NBFCs," said Ramaswamy.
In order to ease the flow of credit into NBFC sector, who have been refused a three-month moratorium by most banks, RBI had announced ₹50,000 crore of TLTRO 2.0 in tranches “to begin with".
RBI governor Shaktikanta Das said on 17 April that funds availed by banks under TLTRO 2.0 should be invested in investment grade bonds, commercial paper, and non-convertible debentures of NBFCs, with at least 50% of the total amount availed going to small- and mid-sized NBFCs and microfinance institutions.
On the other hand, the TLTRO 1.0 window saw 27 corporates raise ₹26,666 crore from commercial papers and 18 corporates raise ₹25,323 crore via medium and long term bonds.
The issuers included six public sector companies and 21 private sector companies for commercial papers and three public sector companies and 15 private sector companies for medium and long term bonds, according to the data.
Majority of them were AA-rated firms and beyond, which are looking to raise cheap funds from banks under the TLTRO window.
Among the private sector companies, Reliance Industries raised ₹8,500 crore and is looking to raise an additional ₹3,000 crore via bonds. Housing Development Finance Corp. also raised ₹2,500 crore and is looking to further raise ₹1,250 crore via three-year bonds.
Public sector companies Power Finance Corp. raised nearly ₹6,890 crore, National Thermal Power Corp. raised ₹4,374 crore and National Board of Rural Development raised ₹2,500 crore via bonds. The primary issuance also saw Larsen and Toubro Ltd and Mahindra and Mahindra raising ₹5,950 crore and ₹1,000 crore, respectively.
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