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TLTRO 2.0: Banks not keen on NBFC bailout, take little over half of RBI funds

Of the Rs 25,000 crore put by the central bank on the TLTRO window on Thursday, banks took only Rs 12,850 crore (for three-year tenor), while there were no takers for the remaining amount. The RBI offers TLTRO funds at the repo rate of 4.40 per cent.

Written by George Mathew | Mumbai | Published: April 24, 2020 3:04:09 am
rbi coronavirus, shaktikanta das covid 19, rbi covid 19 measures, bank npa extension, TLTRO Reserve Bank of India, rbi coronavirus measures, reverse repo rate cut, There’s already a complaint that banks which had taken funds from the central bank’s TLTRO window earlier had given that money to top-rated corporates, ignoring the claims of cash-starved small and medium units. (File Photo)

Banks have largely ignored the Rs 25,000-crore targeted long term repo operations (TLTRO) conducted by the Reserve Bank of India (RBI) and bid for only half of the money put by the RBI on Thursday, indicating their reluctance to bail out troubled non-banking finance companies (NBFCs) and micro-finance institutions (MFIs).

Of the Rs 25,000 crore put by the central bank on the TLTRO window on Thursday, banks took only Rs 12,850 crore (for three-year tenor), while there were no takers for the remaining amount. The RBI offers TLTRO funds at the repo rate of 4.40 per cent.

“Banks don’t seem to be keen on giving money to small and medium NBFCs … many of them are facing liquidity crunch as collections have fallen due to the lockdown,” said a banking source.

There’s already a complaint that banks which had taken funds from the central bank’s TLTRO window earlier had given that money to top-rated corporates, ignoring the claims of cash-starved small and medium units.

Last week, the RBI announced TLTRO 2.0 and the scheme mandates that within the total size of Rs 50,000 crore, 10 per cent should be allocated to MFIs, 15 per cent to NBFCs with asset size of Rs 500 crore and below, and 25 per cent to NBFCs with asset size between Rs 500 crore and Rs 5,000 crore rated in investment grade.

NBFCs, especially those not at the highest end of credit rating, were unable to access the funding. The situation has aggravated as many banks have not been accommodative in providing a moratorium to NBFCs, while the latter have already provided a moratorium to their customers. On top of this, banks are not availing of funds offered by RBI to help small and medium NBFCs, sources said.

Explained

Partial credit guarantee an option

Poor participation by banks in the TLTRO for NBFCs clearly highlights the banks’ reluctance to lend to mid-size and small NBFCs and MFIs in the current situation. A viable option could be a structure with partial credit guarantee by the government, similar to the PCG scheme launched last year for securitisation. This is likely to ease liquidity challenges of NBFCs

Vydianathan Ramaswamy, director—ratings, Brickwork Ratings, said limited participation by banks in the TLTRO 2.0 clearly highlights the banks’ reluctance to lend to mid-size and small NBFCs and MFIs in the current situation. “Given the lack of risk appetite in banks, a structure with partial credit guarantee by the government similar to the PCG scheme launched last year for securitization may be the only viable option to ease liquidity challenges of NBFCs,” he said.

While collections are falling steeply in the wake of the lockdown, closure of units and job losses, an estimated Rs 1.75 lakh crore debt obligation of NBFCs will mature by June 2020.

The RBI had asked banks, co-operative banks and NBFCs to offer three-month moratorium on loan repayments by their customers in the wake of the COVID-19 pandemic and the lockdown in the country. However, banks have refused to give the same facility to NBFCs which have taken huge loans from the banking sector.

According to India Ratings, NBFCs with an asset size between Rs 500 crore and Rs 5,000 crore largely belong to ‘BBB’ and ‘A’ rated categories and may have weaker liquidity and other buffers than higher rated issuers. With a large segment of NBFCs’ customer base (both in MSME and otherwise) likely to be significantly impacted by the lockdown, delinquencies could disproportionately rise for these lenders. The RBI may have to revise their strategy to help small and medium NBFCs as banks are hesitant to give funds to them. In the TLTRO 1.0 window, most of the funding was absorbed by public sector entities and bigger corporates.

A top corporate had raised Rs 8,500 core through an NCD issue earlier this month. Banks have so far mobilised Rs 1 lakh crore from the RBI at repo rate. Many of these corporates are raising this debt to not only tide over short-term liquidity challenges but also strengthen their liquidity buffers.

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