The Reserve Bank of India (RBI) on Friday extended its liquidity measures to make targeted long-term repo transactions (TLTROs) available at the counter and extend the use of the money raised under this window to loans granted by banks. Executives and industry analysts have said that while the expanded program is intended to allow small businesses to access funds, details on eligibility will be critical. The new format is also intended to leave banks with few excuses not to lend aggressively, NBFC chiefs said.

RBI Governor Shaktikanta Das said the central bank will conduct TLTROs on the fly with maturities of up to three years for a total amount of up to Rs 1 lakh crore at a variable rate linked to the policy rate repurchase agreements. The device will be available until March 31, 2021, with flexibility regarding the bonus of the amount and the period after a review of the response to the device. The liquidity available by banks under the program must be deployed in corporate bonds, commercial paper, loans and non-convertible bonds issued by entities in specific sectors above the level of outstanding amounts of their banks. investments in these instruments as of September 30, 2020.

The move should prove useful for banks with excess statutory liquidity ratios (SLRs), as they will be able to pledge those securities to take out loans, said Anil Gupta, vice president and head of industry – ratings of the financial sector, Icra. “We will also be waiting for measures to ensure that the money is well distributed among borrowers in different rating categories, especially companies rated AA and below,” Gupta said. The other thing to watch out for would be whether TLTRO funds are being used for new loans or for reversing existing loans, said Care assessments. Executives of non-bank financial corporations (NBFCs) said the RBI’s action was aimed at getting rid of risk aversion in the system.

Vice-President Nandakumar, Managing Director and Chief Executive Officer, Manappuram Finance, said the RBI is doing its best to dispel any atmosphere of uncertainty that gives rise to unwarranted risk aversion on the part of banks. Umesh Revankar, managing director and CEO of Shriram Transport Finance, said the RBI makes it clear that liquidity is available as long as banks are willing to take risks. “So they don’t want to leave any bank with an excuse. Risk aversion is likely to change as, ultimately, banks must also grow. Some non-bank lenders have expressed skepticism about the program’s effectiveness.

Kinara Capital chief financial officer Aiswarya Ravi said we have to wait and see which sectors are eligible under this program. Funds from previous LTRO and TLTRO avatars have not flowed to lower rated NBFCs. “Another point to note is that although the window has been open until March 2021, it is a godsend and a curse… (the deadline) is so far away that it does not create any urgency for the banks to extend funds in time to serve the post -Covid Recovery, “said Ravi. TT Srinivasaraghavan, Managing Director, Sundaram Finance, explained that the real problem with the liquidity stimulus packages was that they excluded small businesses, many of which were unrated at all. “When you look at the small NBFCs, you have a serious problem because the capital markets are closed to them, the external commercial debt market is closed to them and the insurance companies are closed to them,” he said.