TLTRO 2.0 auction receives poor response from banks

Bids were worth just half the auction amount

MUMBAI: There were not many takers for the funds auctioned under the Targeted Long Term Repo Operation (TLTRO) 2.0 on Thursday for Rs25,000 crore with a 3-year tenor as the bids made by the banks were to the tune of only Rs12,850 crore – a tad above half the funds offered through the auction.

The TLTRO 2.0 window of Rs 50,000 crore was announced by RBI Governor Shaktikanta Das on April 17 and the auction held on Thursday was for the first tranche of Rs25,000 crore.

TLTRO 2.0 scheme has been launched in order to channel liquidity to small and mid-sized corporates, including non-banking financial companies (NBFCs) and micro finance institutions (MFIs) that have been impacted by COVID-19 disruptions.

According to banking experts, the stipulation that at least 50 per cent of the funds raised by the banks through the TLTRO 2.0 should be invested in instruments issued by micro finance institutions (MFIs) and small & mid-sized non-banking financial companies (NBFCs) has kept several banks away from bidding.

Banks would certainly view parking funds with lower rated MFIs and NBFCs as a risky proposition, especially at a time when these institutions are bound to come under financial constraints, thanks to the three-month moratorium announced recently for all loans by RBI.

The RBI has clearly set out terms for banks while deploying the funds raised from TLTRO. It said the funds availed under TLTRO 2.0 shall be deployed in investment grade bonds, commercial paper (CPs) and non-convertible debentures (NCDs) of Non-Banking Financial Companies (NBFCs) and MFIs.

The fund deployment will have to follow other micro allocation terms too. Ten per cent needs to go to the securities/instruments issued by Micro Finance Institutions (MFIs); 15 per cent in securities/instruments issued by NBFCs with asset size of Rs500 crore and below; and 25 per cent in securities/instruments issued by NBFCs with assets size between Rs500 crore and Rs5,000 crore.

India Ratings & Research had already said that though some public sector banks might come forward to participate in the auction, private sector banks would not be that keen to throw their hat in the ring.

It said the lower rated investment grade entities have negligible access to capital markets and banks would be mindful of the fact that these instruments are likely to carry minimal liquidity.

“Though NBFCs with near-term liquidity pressure may borrow at a higher price, knowing well that it would hit their spreads, NBFCs with adequate liquidity buffers may choose to wait and allow the dust to settle down,” Ind-Ra had said in its note.




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