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RBI extends liquidity to stressed sectors with cheaper refinance

Date: 05-12-2020
Subject: RBI extends liquidity to stressed sectors with cheaper refinance
MUMBAI: Stressed sectors have got a fresh line of support with the RBI extending its targeted long-term repo operations (TLTROs) to the 26 industries — including power, realty and textiles — identified by the K V Kamath-led committee for loan relief. 

The TLTRO is a facility under which the RBI nudges banks to lend by providing them cheap refinance for loans and bond investments. Earlier this year, when NBFCs were facing a credit squeeze, the RBI helped them navigate the crisis by making available cheap funds to banks, which lent to them. As a result the finance companies were able to smoothly meet their short-term repayment obligations during the lockdown. 

According to bankers, while the TLTRO encourages banks by providing them a large margin, the emergency credit line guarantee scheme, which has been extended to the same 26 sectors, will address the credit risk. “There is a clear signal to align the TLTRO with the emergency line of credit with government guarantee, which is a good step. Hence, banks can take money from the RBI under the TLTRO and use these funds for lending to these sectors as identified by the Kamath committee, and also get a guarantee from the government based on the terms of the scheme,” Care Ratings chief economist Madan Sabnavis said in a note. 

Some analysts feel that given the surplus liquidity, banks may not find it necessary to tap the RBI for funds. However, bankers point out that credit growth is picking up from November. 


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