Following the Monetary Policy Committee (MPC) meeting on October 9, Reserve Bank of India (RBI) Governor Shaktikanta Das said the central bank will conduct on tap Targeted Long Term Repo Operations (TLTROs) of Rs 1 lakh crore for up to three years at floating rates linked to the repo rate.
This would help banks conduct operations smoothly and seamlessly without being hindered by illiquidity frictions, Das said.
These TLTRO funds will be deployed in corporate bonds, commercial papers, and non-convertible debentures.
"The focus of liquidity measures by the RBI will now include revival of activity in specific sectors that have both backward and forward linkages, and multiplier effects on growth," Das said, explaining the rationale behind the move.
In order to provide certainty to banks with regard to their investments, the central bank has also decided to extend the dispensation of the enhanced Held to Maturity (HTM) limit of 22 percent up to March 31, 2022 for securities acquired between September 1, 2020 and March 31, 2021, Das said.
On September 1, the RBI had increased investments permitted to be classified as HTM to 22 percent from 19.5 percent of Net Demand and Time Liabilities (NDTL) in respect of statutory liquidity ratio (SLR) securities acquired on or after September 1, 2020 up to March 31, 2021.
Das also announced that the Reserve Bank will conduct Open Market Operations (OMOs) in State Development Loans (SDLs) as a “special case” during the current financial year.
This is to impart liquidity to SDLs and thereby facilitate efficient pricing, Das said in his address.
“This would improve secondary market activity and rationalise spreads of SDLs over central government securities of comparable maturities,” Das added. “This measure, along with the extension of HTM till March 2022, should ease concerns about illiquidity and absorptive capacity for the total government borrowing in the current year.”
On October 9, the MPC unanimously decided to keep the repo rate unchanged at 4 percent and maintain its accommodative stance in a bid to “revive growth in a durable basis”. Reverse repo rate remained unchanged at 3.35 percent. Marginal standing facility and bank rate also remained unchanged.Das also said that India’s Gross Domestic Product (GDP) is seen contracting by 9.5 percent in FY21 amid economic disruptions caused by the novel coronavirus pandemic. Das also said that GDP growth may turn positive by Q4 amid some economic recovery.