TLTRO Synergy with ECLGS
The Reserve Bank of India has recently announced that TLTRO will be working in synergy with ECLGS in order to cover stressed sectors.
What is TLTRO?
- In order to increase the liquidity in the economy and to revive the activities in many sectors, the Government of India launched the Targeted Long-Term Repo Operations (TLTRO), under which banks can borrow funds from RBI at the Repo rate for a term of 3 years.
- The on-tap targeted Long-term Repo Operations of a total amount of Rs 1, 00,000 crores was announced on October 9.
- TLTRO is operational till 31st March 2021 and all banks eligible under LAF (Liquidity Adjustment Facility) are eligible to participate in the scheme.
- The scheme works on tap after the bank place requests to RBI for funds.
- The funds borrowed by banks under TLTRO have to be deployed as commercial paper, corporate bonds, and non-convertible debentures issued by entities in sectors of agriculture, retail, agri-infrastructure, MSME, drugs, pharmaceuticals, and healthcare.
- Investments made by banks under TLTRO are classified as held to maturity (HTM).
What is ECLGS?
- In order to provide financial assistance to various MSMEs and other business entities to tide away the problems faced by them due to COVID-19, the Government of India introduced Emergency Credit Line Guarantee Scheme (ECLGS), under which Banks would give financial assistance to the entities.
- The government has recently extended the scheme to health and other sectors.
Synergy of TLTRO with ECLGS
As per RBI, TLTRO will be expanded to cover the stressed sector in synergy with the credit provided by ECLGS. This is expected to increase the synergy between the two schemes and provide credit support to stressed sectors of the economy.
The liquidity availed by the banks through TLTRO operations would be extended as loans to stressed sectors thereby helping the economy to revive quickly.