The Reserve Bank on Friday conducted the fourth and the final tranche of the Rs 1 lakh crore targeted long term repo operation (TLTRO) by infusing Rs 25,000 crore into the system.
While the TLTRO was announced on March 27, the LTRO was introduced at the February 6 monetary policy review when it announced Rs 1-lakh crore infusion through 3-year repo at 4.40 per cent.
The central bank on Friday announced TLTRO 2.0 for Rs 50,000 crore, targeted at lower-rated debt instruments from NBFCs and housing finance companies (HFCs).
Both TLTRO and LTRO are liquidity enhancing tools under which the RBI infuses money by selling 3-year repos -- the longest in history -- as normally the repos are overnight or at best of 15 days duration.
The RBI announced the result of the fourth tranche of the TLTRO on Friday for a notified amount of Rs 25,000 crore for three-year tenor at the repo rate. This sale was announced on April 15.
"The RBI received total bids for Rs 61,415 crore, implying a bid to cover ratio of 2.46," the central bank said, adding it received 11 bids for the amount, while the amount allotted was Rs 25,009 crore, indicating a pro-rata allotment percentage of 40.71.
While the LTRO was lunched to infuse overall liquidity into the system under which banks were supposed to make retail lending for realty, auto and home loans, the TLRTO was introduced to infuse liquidity into the corporate bond market.
Under the TLTRO, the banks were supposed to invest half of the money raised through this route in corporate bonds, commercial papers or certificate of deposits or any other tradable debt instrument within 30 working days of raising the fund.
But the objective of overall liquidity enhancement in the corporate bond market did not materialise as banks have been risk averse and were willing to pick only high-rated papers, leaving the really fund-starved lower-rated entities in the lurch.
What is more, to cash in on this, large companies like Reliance hit the NCD market and it raised Rs 8,500 crore on April 17. Many AAA-rated issuers like HDFC, PowerGrid and NHB, among others, are reportedly planning to hit the short-term debt market.
Reliance sold the Rs 8,500 crore NCDs at 7.20 per cent annual coupon for a Rs 4,000 crore fixed tenor three-year money and a Rs 4,500-crore three-year floating rate debt -- which means it is offering only 280 bps spread over the repo rate.
Therefore to avoid better-rated companies walking away with the bulk of the cheap funds, on April 15 the RBI capped a single bank's exposure to large corporate debt at 10 per cent of the TLTRO funds.
Also, to help lower-rated NBFCs and HFCs, which are in dire need of liquidity, the RBI on Friday announced a revised TLTRO scheme under which it will sell three-year repos at 4.40 per cent to interested banks.
These banks, upon raising the funds, will have invest 50 per cent of the same in debt papers issued by lower-rated entities within 30 days. Failing to do so will see banks paying 200 bps penal interest on the idling money, Governor Shaktikanta Das said.
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