Targeted Long Term Repo Operations-TLTRO
Targeted Long-Term Repo Operations (TLTRO) is a special kind of LTRO or Long Term Repo Operation. LTRO is a special window announced by RBI to inject liquidity into the banking system for meeting their requirements in short to medium term. The liquidity injection under TLTRO is made for a specific purpose / utilisation in an identified segment.
Announcements by RBI with regard to LTRO and TLTROs
RBI has so far made three announcements with regard to LTRO and TLTRO.
i. RBI announced its plan to conduct LTRO for injecting Rupees one lakh crores for one year and three year tenors through its ‘Statement on Developmental and Regulatory Policies’ dated 6th February 2020. LTROs proposed was over and above the liquidity facilities extended through LAF and MSF. The collaterals to be offered were that applicable to LAF ie Government Securities including State Development Loans (SDLs).
ii. On March 27, 2020, RBI announced its decision to conduct Targeted Long Term Repo Operations (TLTRO) up to three years of appropriate sizes for a total amount of Rupees one lakh crores. The funds were offered at floating rate linked to Repo rates. The funds were to be deployed in investment grade corporate bonds, commercial paper, and non-convertible debentures, within 30 days of raising fund.
iii. On April 17,2020, RBI announced another Targeted Long-Term Repo Operations (TLTRO) 2.0 at policy Repo rate for tenors upto three years for total amount up to Rupees fifty thousand crores. Banks were required to channelize the liquidity towards small and mid-sized corporates, including non-banking financial companies (NBFCs) and micro finance institutions (MFIs), that have been impacted by COVID-19 disruptions.
Why was TLTRO 1.0 announced?
Rapid spread of Covid 19 pandemic resulted in large sell-offs in the domestic equity, bond and forex markets. Huge, unprecedented demand for redemption and lack of fresh investors brought down the prices of corporate bonds, commercial paper and debentures, at a rapid pace. To mitigate adverse effects of redemption on economic activities leading to pressures on cash flows, RBI decided to inject total amount up to Rupees one lakh crores into the banking system.
What were the conditions stipulated for funds injected under TLTRO 1.0?
1. Banks shall utilise the amount borrowed under TLTRO for fresh acquisition of securities from primary/secondary market (in investment grade corporate bonds, commercial paper, and non-convertible debentures) over and above the outstanding level of their investments in these bonds as on March 27, 2020.
2. Fifty percentage of fresh investment shall be made in primary market and the remaining in secondary market, which may include mutual funds and non-banking finance companies.
3. Deployment shall occur within 30 working days, failing which penal interest at the rate of 200 bps over Repo rate will be charged on the funds un-deployed.
4. Investments made by banks under TLTRO can be classified under held to maturity (HTM) category even in excess of 25 per cent of total investment permitted to be included in the HTM portfolio, in normal course.
5. The exposures/ investments under TLTRO need not be considered under the large exposure framework.
