Banks not deploying the money raised from the RBI’s targeted long term repo operations (TLTRO) within a specified time will be penalised, the apex bank said on Monday.
Under TLTRO, announced last month, the RBI will conduct auctions of term repos of up to three-year tenor at a floating rate linked to the repo rate. Liquidity availed under the scheme by banks has to be deployed in investment grade corporate bonds, commercial paper and non-convertible debentures over and above the outstanding level of their investments in these bonds as on March 25, 2020.
So far, the RBI has conducted three auctions of Rs 25,000 crore each with an objective to ease financial conditions particularly of sectors witnessing a slowdown in bank credit and tightness in their cash flows.
Securities availed under the programme can be categorised as held to maturity (HTM). Held to maturity are those papers which are held by banks for their full tenure. If categorised as held to maturity,banks need not value them at current prices or they need not be marked to market prices.
In a FAQ on TLTRO, the central bank said lenders have already been given sufficient time to deploy funds under the scheme. Banks who have raised funds from the auction carried out on March 27 must deploy them within 30 working days.
If a bank fails to deploy funds within the specified time frame, the interest rate on unutilised funds will increase to the prevailing policy repo rate plus 200 basis points for the number of days such funds are not deployed.
This incremental interest will have to be paid along with regular interest at the time of maturity.
The RBI said there will be no maturity restriction on the specified securities to be acquired under TLTRO scheme. However, the outstanding amount of specified securities in a bank’s HTM (held to maturity) portfolio should not fall below the amount availed under the TLTRO scheme.