Reserve Bank of India (RBI) to conduct on-tap targeted long-term repo operations (TLTRO)

The Reserve Bank of India (RBI) has said it will conduct on-tap targeted long-term repo operations (TLTRO) for an amount of Rs.1 lakh crore to ensure comfortable liquidity conditions in the system.
Liquidity availed by banks under the scheme has to be deployed in corporate bonds, commercial papers, loans and non-convertible debentures issued by entities in specific sectors over and above the outstanding level of their investments in such instruments as on September 30, 2020.
The LTRO: a tool under which the central bank provides 1 year to 3 year money to banks at the prevailing repo rate, accepting government securities with matching or higher tenure as the collateral.
While the RBI’s current windows of liquidity adjustment facility (LAF) and marginal standing facility (MSF) offer banks money for their immediate needs ranging from 1-28 days, the LTRO supplies them with liquidity for their 1- to 3-year needs.
LTRO operations are intended to prevent short-term interest rates in the market from drifting a long way away from the policy rate, which is the reporate.
As banks get long-term funds at lower rates, their cost of funds falls. In turn, they reduce interest rates for borrowers.
LTRO helped RBI ensure that banks reduce their marginal cost of funds-based lending rate, without reducing policy rates.

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