The Reserve Bank of India has identified five sectors to which banks can lend using funds from an on-tap liquidity facility. The targeted long-term repo operation is the third such facility introduced to provide long term funding to banks to spur lending.
Earlier this month, the RBI had said that it would offer Rs 1 lakh crore in three-year funds under the on-tap facility. On Wednesday, it said this liquidity can be used to five sectors:
- Agriculture
- Agri-infrastructure
- Secured Retail
- Micro, Small and Medium Enterprises (MSMEs)
- Drugs, Pharmaceuticals and Healthcare
Banks can borrow funds from the facility to purchase bonds, commercial paper, NCDs of companies in these sectors. Unlike previous round of TLTRO, this time banks can also lend using funds.
Investments made by banks under this facility will be classified as held to maturity (HTM) even in excess of 25 percent of total investment permitted to be included in the HTM portfolio. All exposures under this facility will also be exempted from reckoning under the large exposure framework (LEF).RBI Circular
Separately, the RBI has also allowed banks to pre-pay funds raised under previous rounds of TLTROs. Banks looking to pre-pay funds raised for a three-year duration between Nov. 2-6.
While liquidity remains in surplus, the RBI has been longer term funds to banks to try and spur lending. The targeted lending operations haven't been fully successful as banks have complained of limited avenues to deploy funds. Concerns over credit quality and capital constraints have kept bank credit growth slow, even though funds raised through corporate debt have surged.
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