RBI’s Funding Facility Targeted At NBFCs Fails To Garner Much Interest
The Reserve Bank of India’s attempt to provide funding relief to non-bank lenders failed to draw a strong response, as banks signaled their reluctance to lend to smaller non bank finance companies.
The central bank’s targeted long term repo operation, or TLTRO 2.0 as the RBI termed it, saw bids worth only half the amount on offer, showed results of the auction conducted on Thursday.
- A total of 14 banks put in bids worth Rs 12,580 crore under TLTRO 2.0.
- This was just about half of the Rs 25,000 crore that was on offer in the first round of TLTRO 2.0.
Last week, RBI Governor Shaktikanta Das announced that the central bank would provide Rs 50,000 crore of liquidity to banks for a three-year period under the second round of its targeted liquidity operations. Unlike the first time the RBI conducted such operations, this time around the funds came with more conditions.
As per the conditions:
- 10 percent has to be invested in instruments and securities issued by MFIs.
- 15 percent must be invested in debt securities of NBFCs with an asset size of Rs 500 crore and below.
- 25 percent must go towards debt securities of NBFCs with an asset size between Rs 500 crore and Rs 5,000 crore.
While the RBI eased some of the conditions, such as extending the timeline for investment to 45 days from 30 days earlier, the auction failed to garner adequate interest.
In a note published before the auction was conducted, India Ratings and Research said that most NBFCs with an asset size of between Rs 500 crore and Rs 5,000 crore have a credit rating of A or BBB, whereas a large number of NBFCs with a balance-sheet size of less than Rs 500 crore don’t have investment grade credit ratings.
“It could be even more challenging for NBFCs with a balance sheet size of less than Rs 500 crore, especially as a large number of these would not be rated in the investment grade,” the rating agency said in a April 20 report.
Risk aversion among banks to take on further credit risk and uncertainty over finding adequate investment opportunities likely kept lenders away from the auction.
Funds raised through the auction, which are not invested in the stipulated time period, attract a penal interest rate of 200 basis points above the repo rate, according to conditions laid down by the RBI.