MUMBAI: The Reserve Bank of India (RBI) fell back on liquidity-enhancing measures to cap interest rates and to ensure there is enough cash for banks and non-banking financial companies (NBFCs) to lend as the consumer price inflation (CPI) inched up to 3.5%.

The latest moves include targeted long-term repo operations (TLTROs) of Rs 1 lakh crore at the floating rate linked to the repo rate where banks can pledge their government securities and lend to NBFCs of specific sectors. The on-tap TLTROs will have tenures up to three years at a floating rate linked to the policy repo rate.

In the past, the RBI has conducted TLTROs, but this time banks can use the money not just for debt instruments but also for corporate loans.

Banks have a headroom to raise Rs 3.75 lakh crore from the bond market as the RBI increases the statutory liquidity ratio (SLR) to 22% from the existing 19.5%. SLR is the statutory requirement on banks to hold government securities. This means 22% of the bank's net assets and liabilities should be invested into government bonds. The scheme will be available up to 31 March 2021.

The central bank has also announced an open market operation (OMO) of Rs 20,000 crore for state governments.

"Market participants should be assured that in keeping with the monetary policy stance announced Friday, the RBI will maintain comfortable liquidity conditions and will conduct market operations in the form of outright and special OMO. The RBI has doubled the size of OMO auctions to Rs 20,000 crore. It has also decided to conduct OMOs in state paper this year," said RBI governor Shaktikanta Das.

The special liquidity window is for deployment in the corporate bonds, commercial papers and non-convertible debentures, issued by companies in specific sectors, and the details of which the central bank will notify shortly.

Investments made by banks under this facility will be classified as held to maturity (HTM) even in excess of 25% of total investment permitted to be included in the HTM portfolio. These exposures will also be exempt from reckoning under the large exposure framework limits prescribed by the RBI.

Moreover, banks that had availed of funds earlier under TLTRO and TLTRO 2.0 will be given the option of reversing these transactions before maturity. In view of the borrowing requirements of the centre and states in the second half of 2020–21 and the likely pick-up in demand for credit as the recovery gathers strength, on-tap TLTROs are intended to enable banks to conduct their operations smoothly and seamlessly without being hindered by illiquidity frictions. The objective is to ensure that liquidity in the system remains comfortable. The details of the scheme would be announced separately.

Said Standard Chartered Bank India CEO Zarin Daruwala, "The on-tap TLTRO, Gsec and state development loan (SDL) OMOs and the extension of the period for the enhanced HTM limit will cap interest rates and ensure a resilient economic recovery."

Since 6 Feb, the RBI has conducted Rs 2 lakh crore worth LTRO, Rs 1 lakh crore worth TLTRO and Rs 50,000 crore worth of TLTRO (2.0), improving the liquidity in the system.

Said Shriram Transport Finance managing director and CEO Umesh Revankar, "The RBI reiterated its accommodative stance to continue for as long as necessary while keeping rates unchanged. The focus has been on easing financial conditions, keeping liquidity very comfortable in the system and reducing the cost of money through on-tap Rs 1 lakh crore TLTROs and OMOs in state development loans. Sectors of economy like FMCG, agriculture, autos and warehousing, among others, have been more resilient than others in Q2 and this augurs well for transport industry that ensures last mile connectivity."