TLTRO

Subject: Economics

Context: Stressed sectors have got a fresh line of support with the RBI extending its targeted long-term repo operations (TLTROs) to the 26 industries — including power, realty and textiles.

Concept:

• LTRO is a tool that allows banks to borrow one to three years of funds from the Central Bank at the Repo rate.
• It is called ‘Targeted’ LTRO if the Central Bank wants banks opting for funds under this option to be specifically invested in investment-grade corporate debt.
• 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.