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Explained: What is RBI’s ‘On Tap TLTRO’ scheme? All you need to know

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Access to easy capital and influx of cash at low-interest rates were of paramount importance for many distressed sectors and companies. Under the TLTRO scheme, which was extended till December 31, banks could pledge government securities and invest in company bonds.

Explained: What is RBI’s ‘On Tap TLTRO’ scheme? All you need to know
The Reserve Bank of India (RBI) extended the special 3-year long-term repo operation (LTRO) of Rs 10,000 crore for small finance banks (SFBs) till December 31 and made it available on-tap.
The ‘On Tap TLTRO’ worth Rs 1 trillion, was originally unveiled over a year ago.
Under the scheme, the RBI would allow banks to extend liquidity by pledging government securities with the central bank and then invest the said liquidity back into the economy. Targeted long-term repo operations (TLTRO) are borrowed from the central bank at repo rates, which currently stand at 4 percent, for a period of three years. These funds need to be invested in corporate bonds, commercial papers, and non-convertible debentures distributed in 31 specific sectors. These sectors were chosen based on the stress they were in as a result of the pandemic.
The scheme provided banks with a liquidity option for the long-term unlike short-term policies like liquidity adjustment facility (LAF) and marginal standing facility (MSF) that the RBI offers to banks.
Why is the TLTRO important?
The ‘on tap’ TLTRO scheme is important as banks get easy access to cheap capital from the central bank, which they, in turn, can lend out to other businesses and sectors in terms of investment-grade corporate bonds. While the RBI cannot directly give out a fiscal stimulus, by providing access to cheaper capital, the RBI ensures the steady flow of capital in the economy. Since these funds can also be used to provide bank loans and advances to the distressed sector, the cash crunch that many sectors are facing is ameliorated.
As the banks need to pledge government securities in order to take the capital, the prices for government securities also get propped up as a result.
What are the maturity restrictions?
There are no maturity restrictions on the securities that are to be acquired within the ambit of the scheme. However, banks need to keep their held to maturity (HTM) specified security portfolio above or equal to the amount that has been availed under the TLTRO scheme.
Banks availing the scheme also have to invest the amount availed under the following manner under RBI’s orders -- 10 percent in securities of Microfinance Institutions (MFIs), 15 percent in securities of NBFCs with an asset size of up to Rs 500 crore or below, and 25 percent in securities by NBFCs with an asset size between Rs 500 crore and Rs 5,000 crore.
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