Additional RBI FAQ's on TLTROs 2.0 dated 21.04.2020

[CSLalit Rajput]

Key Highlights:

• The funds availed under TLTRO 2.0 can be deployed within 45 days of availment, against 30 days for TLTRO 1.0
• The TLTRO 2.0 scheme announced by RBI offers an initial sum of ₹ 50,000 crores
• Reverse Repo rate reduced from 4.0% to 3.75%
• India is projected to turn around and grow at 7.4% in 2021-22

• Overview

RBI announces second set of measures on 17^th April, 2020 to preserve financial stability and help put money in the hands of the needy and disadvantaged.

FAQs pertaining to TLTRO 2.0

Q1: What happens if a bank fails to deploy the funds availed under the TLTRO 2.0 scheme in specified securities within the stipulated timeframe?

Ans: Based on the feedback received from banks and taking into account the disruptions caused by COVID-19, it has been decided to extend the time available for deployment of funds under the TLTRO 2.0 scheme from 30 working days to 45 working days from the date of the operation. Funds that are not deployed within this extended time frame will be charged interest at the prevailing policy repo rate plus 200 bps for the number of days such funds remain un-deployed. The incremental interest liability will have to be paid along with regular interest at the time of maturity.

Q2: Under the TLTRO 2.0 scheme, will the specified eligible instruments have to be acquired up to fifty per cent from primary market issuances and the remaining fifty per cent from the secondary market. Is this limit fungible between primary and secondary market?

Ans: In order to provide banks flexibility in investment, this condition will not be applicable for funds availed under TLTRO 2.0.

Q3: The Reserve Bank while announcing the fourth TLTRO on April 15, 2020 advised that the maximum amount that a particular bank can invest in the securities issued by a particular entity or group of entities out of the allotment received by it under the TLTRO shall be capped at 10 per cent. Is this condition also applicable to TLTRO conducted before April 15, 2020? Will this condition apply for deployment of funds under TLTRO 2.0?

Ans: This condition applies only to the fourth TLTRO conducted on April 17, 2020. It does not apply to the TLTROs conducted before April 17, 2020. It also does not apply to TLTRO 2.0.

Q4: Will the specified securities acquired from TLTRO funds and kept in HTM category be included in computation of Adjusted Net Bank Credit (ANBC) for the purpose of determining priority sector targets/sub-targets?

Ans: In terms of the press release 2237/2019-2020 dated April 17, 2020  notifying the TLTRO 2.0 scheme, at least 50 per cent of the total funds availed under the scheme has to be deployed in specified securities issued by small NBFCs of asset size of ₹ 500 crores and below, mid-sized NBFCs of asset size between ₹ 500 crores and ₹ 5000 crores and MFIs. The objective is to ease any liquidity stress and/or impediments to market access that these small and mid-sized entities might be facing. In order to incentivise banks’ investment in the specified securities of these entities, it has been decided that a bank can exclude the face value of such securities kept in the HTM category from computation of adjusted non-food bank credit (ANBC) for the purpose of determining priority sector targets/sub-targets. This exemption is only applicable to the funds availed under TLTRO 2.0.

Source: Targeted Long Term Repo Operations (TLTROs) - FAQ (Updated as on April 22, 2020)  https://www.rbi.org.in/Scripts/FAQView.aspx?Id=134