The TLTRO is a facility under which the RBI nudges banks to lend by providing them cheap refinance for loans and bond investments. Earlier this year, when NBFCs were facing a credit squeeze, the RBI helped them navigate the crisis by making available cheap funds to banks, which lent to them. As a result the finance companies were able to smoothly meet their short-term repayment obligations during the lockdown.
According to bankers, while the TLTRO encourages banks by providing them a large margin, the emergency credit line guarantee scheme, which has been extended to the same 26 sectors, will address the credit risk. “There is a clear signal to align the TLTRO with the emergency line of credit with government guarantee, which is a good step. Hence, banks can take money from the RBI under the TLTRO and use these funds for lending to these sectors as identified by the Kamath committee, and also get a guarantee from the government based on the terms of the scheme,” Care Ratings chief economist Madan Sabnavis said in a note.
Some analysts feel that given the surplus liquidity, banks may not find it necessary to tap the RBI for funds. However, bankers point out that credit growth is picking up from November.
“The growth is expected to be better with the GDP estimate being revised upwards for FY21. The credit offtake is expected to get a boost, we expect it to top at least 8% in the days to come,” said Punjab National Bank MD & CEO CHSS Mallikarjuna Rao.
“Given the surplus liquidity situation and decline in short-term rates below reverse repo rates, the banks have significantly repaid the funding availed from the RBI under various long-term repo operations,” said ICRA vicepresident Anil Gupta. “The availability of on-tap TLTRO funding to banks is unlikely to be an incremental incentive,” he added.