New Delhi: The Reserve Bank of India (RBI) Friday said it will conduct on-tap targeted long-term repo operations (TLTRO) worth Rs 1 lakh crore to ensure comfortable liquidity condition in the banking system.
As a special case, the central bank also announced open market operations (OMOs) in state development loans (SDL) in the current financial year.
It has been decided to conduct on-tap TLTRO with tenors of up to three years for a total amount of up to Rs 1 lakh crore at a floating rate linked to the policy repo rate, RBI governor Shaktikanta Das said while announcing the monetary policy earlier in the day.
Liquidity availed by banks under the scheme has to be deployed in corporate bonds, commercial papers, and non-convertible debentures issued by entities in specific sectors over and above the outstanding level of their investments in such instruments as on September 30, 2020, he said.
The liquidity availed under the scheme can also be used to extend bank loans to these sectors, Das said.
In view of the borrowing requirements of the centre and states in the second half of 2020-21 and the likely pick-up in demand for credit as the recovery gathers strength, on tap TLTROs are intended to enable banks to conduct their operations smoothly and seamlessly without being hindered by illiquidity frictions, the governor said.
He said banks that had availed of funds earlier under TLTRO and TLTRO 2.0 will be given the option of reversing these transactions before maturity.
The scheme will be available up to March 31, 2021, with flexibility with regard to enhancement of the amount and period after a review of the response to the scheme, he said.
The governor further said in order to impart liquidity to SDLs and thereby facilitate efficient pricing, it has been decided to conduct OMOs in SDLs as a special case during the current financial year.
This would improve secondary market activity and rationalise spreads of SDLs over central government securities of comparable maturities, he added.
In September this year, RBI had increased the investments permitted to be classified as held-to maturity (HTM) from 19.5 per cent to 22 per cent of NDTL (net time and demand liabilities) in respect of statutory liquidity ratio (SLR) securities acquired on or after 1 September, 2020 up to 31 March, 2021.
The governor on Friday said, In order to provide certainty to banks as regards their investments and to foster orderly market conditions while ensuring congenial financing costs, it has been decided to extend the dispensation of the enhanced HTM limit of 22 percent up to 31 March, 2022, for securities acquired between 1 September, 2020, and 31 March, 2021. The move will help banks to plan their investments in SLR securities in an optimal manner, he said.