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

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    14th Oct, 2020

  • 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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