Tag: SLTRO

RBI issues revised operational guidelines on on-tap SLTRO scheme for SFBs, BFSI News, ET BFSI

Banking & Finance

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The Reserve Bank of India (RBI) on Monday issued revised operational guidelines on the special long-term repo operations (SLTRO) scheme for small finance banks (SFBs). In the monetary policy announced last week, the RBI had extended the on-tap SLTRO for SFBs till December 31, 2021. This facility was earlier made available till October 31, 2021.

The RBI in a statement on Monday said all SFBs eligible under the liquidity adjustment facility (LAF) can participate in the scheme.

“There is no tenure restriction regarding lending by SFBs under the scheme. However, the SFBs will have to ensure that the amount borrowed from the RBI should at all times be backed by lending to the specified segments till maturity of the SLTRO,” the statement said.

Furthermore, SFBs should endeavour to lend within a reasonable period, i.e., not later than 30 days from the date of availing the funds from the RBI.

“The scheme will now be operationalised on tap,” RBI said.

Accordingly, the last tranche of the SLTRO auction due on October 14, 2021, announced on May 7, 2021, will not be conducted, it said.

SFBs can place requests for funds through e-mail and the RBI will aggregate all such requests received and release funds every Monday (on the subsequent working day if Monday is a holiday) by initiating a three-year repo contract at repo rate with the requesting bank, the statement said.

Requests from the SFBs desirous of availing funds from the RBI will be subject to the availability of funds as on the date of application. The funds cannot be guaranteed in case the total amount of Rs 10,000 crore is already availed, the statement said.

In case the requested amount exceeds the remaining amount under the scheme on the date of operation, the remaining amount will be distributed on a pro-rata basis among all the eligible requests.

The RBI reserves the right to decide the quantum of allotment and/ or accept/ reject any or all the requests, either wholly/ partially, without assigning any reason thereof.

The eligible collateral and margin requirements will remain the same as applicable for LAF operations.

The amount utilised under the scheme will be informed to market participants in the money market operations (MMO), RBI said. PTI HV HRS hrs



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RBI extends three-year SLTRO facility to SFBs

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The Reserve Bank of India has extended the three-year special long-term repo operations facility for Small Finance Banks by two months till December-end 2021.

This facility, which is available at the repo rate of 4 per cent, aggregating ₹10,000 crore was announced by the central bank in May 2021 to help SFBs provide last mile credit to individuals and small businesses.

Liquidity drawn from this facility has to be deployed by SFBs for fresh lending of up to ₹10 lakh per borrower.

“Recognising the persisting uneven impact of the pandemic on small business units, micro and small industries, and other unorganised sector entities, it has been decided to extend this facility till December 31, 2021.

“Further, this will now be available on tap to ensure extended support to these entities,” RBI Governor Shaktikanta Das said.

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SFBs avoid special liquidity window as MSME credit demand dries up, BFSI News, ET BFSI

Banking & Finance

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Small finance banks (SFBs) that got a push from the Reserve Bank of India in terms of special liquidity window have been slow to tap into it.

Under the Rs 10,000-crore liquidity facility announced by the Reserve Bank of India (RBI) in May as part of its pandemic relief measures, SFBs get funds at 4% for three years, which is significantly lower than their average cost of funds, for fresh lending to micro, small and medium enterprises (MSMEs). The new facility helps them to get about 1-1.5% positive carry on the borrowed funds, even after investing the same amount into government securities as mandated by the central bank.

However, in the Special Long-Term Repo Operations (SLTRO) conducted by the Reserve Bank of India in May, June and July, SFBs cumulatively borrowed only Rs 1,640 crore against the notified amount of Rs 10,000 crore. They can still borrow the unutilised amount of Rs 8,360 crore till October.

Experts says ample liquidity and muted credit demand from the micro, small and medium enterprise (MSME) segment.

SLTRO boost

Announcing the SLTRO in May, RBI governor Shaktikanta Das had said, “Small finance banks (SFBs) have been playing a prominent role by acting as a conduit for the last-mile supply of credit to individuals and small businesses.”.

“To provide further support to small business units, micro and small industries, and other unorganised sector entities adversely affected during the current wave of the pandemic, it has been decided to conduct special three-year long-term repo operations of Rs 10,000 crore at repo rate for the SFBs, to be deployed for fresh lending of up to Rs 10 lakh per borrower,” Das had said, adding that the facility will remain open till October 31, 2021.

Priority loans

The RBI had also allowed the classification of priority sector lending for loans given by small finance banks (SFB) to micro-finance institutions (MFI) for on-lending to individuals.

The decision has been taken to address the liquidity issues of MFIs amid the severe Covid crisis.

RBI Governor Shaktikanta Das said: “In view of the fresh challenges brought on by the pandemic and to address the emergent liquidity position of smaller MFIs, SFBs are now being permitted to reckon fresh lending to smaller MFIs (with asset size of up to Rs 500 crore) for on-lending to individual borrowers as priority sector lending.” This facility will be available up to March 31, 2022.



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Special Long-Term Repo Operations: SFBs slow to borrow via RBI window

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Small Finance Banks (SFBs) seem to be in no hurry to borrow from the RBI’s special liquidity window , if one goes by the amount they have drawn since this facility was operationalised in May.

In the Special Long-Term Repo Operations (SLTRO) conducted by the Reserve Bank of India in May, June and July, SFBs cumulatively borrowed only ₹1,640 crore against the notified amount of ₹10,000 crore. They can still borrow the unutilised amount of ₹8,360 crore till October.

Industry experts attributethise to many SFBs having ample liquidity and the muted credit demand from the micro, small and medium enterprise (MSME) segment.

Some even cited constraints in terms of pledging SLR (statutory liquidity ratio) securities (investments made by banks in Government Securities/G-Secs and State Development Loans/SDLs) with the RBI to borrow three-year money via the special liquidity window. (SLR is the slice of deposits Banks have to invest in G-Secs and SDLs. Currently, it is at 18 per cent of deposits.)

In early May, the RBI had announced that it will conduct three-year SLTRO (one each every month from May through October) of ₹10,000 crore at the repo rate (4 per cent) for the SFBs. The unutilised amount is carried forward to the subsequent auction. This is to provide further support to small business units, micro and small industries, and other unorganised sector entities affected by the Covid second wave.

The SLTRO funds drawn by SFBs have to be deployed for fresh lending of up to ₹10 lakh per borrower. This facility is available till October 31, 2021.

“Though SLTRO is an excellent facility as it brings down our cost of funds and incentivises us to lend, liquidity-wise, most SFBs are currently comfortable. In our case, we have not found a direct use case for the facility at this point of time,” said a senior official of an SFB.

The official observed that if credit demand were to pick up, then instead of disposing off excess SLR securities that SFBs have, SLTRO may offer a better route to raise resources.

A senior executive with another SFB underscored that when a bank pledges SLR securities with the RBI, they become encumbered. Since the pledged/encumbered securities are deducted for the purpose of arriving at SLR, banks are mindful of maintaining SLR above the minimum threshold of 18 per cent of deposits.

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RBI to conduct SLTRO of Rs 10,000 crore for small finance banks on May 17, BFSI News, ET BFSI

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The Reserve Bank on Friday said it will conduct the first auction for special long-term repo operations (SLTRO) of Rs 10,000 crore for Small Finance Banks (SFBs) on May 17. To provide further support to small business units, micro and small industries, and other unorganised sector entities adversely affected during the current wave of the pandemic, the RBI has decided to conduct SLTRO of Rs 10,000 crore at the repo rate for the SFBs, to be deployed for fresh lending of up to Rs 10 lakh per borrower.

The facility will be available till October 31, 2021.

In a statement, the Reserve Bank of India said it will conduct one auction for SLTRO each month.

“The first auction will be conducted on May 17, 2021, for Rs 10,000 crore. The unutilised portion of notified Rs 10,000 crore will be carried forward in each subsequent auction until fully utilised or till the last auction, whichever is earlier,” it said.

The SFBs participating in the scheme will have to ensure that the amount borrowed from the RBI should at all times be backed by lending to the specified segments till the maturity of the SLTRO.

Further, SFBs should endeavour to lend within 30 days from the date of availing the funds from the RBI.

In case of over-subscription of the notified amount, the allotment will be done on a pro-rata basis, the central bank said.

The minimum bid amount would be Rs one crore and multiples thereof.



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To get RBI funds at 4%, can lend at up to 20%, BFSI News, ET BFSI

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Last year it was fintech firms that got a boost from the digitisation wave in banking, this time small finance banks (SFBs) are getting a push.

The Rs 10,000-crore support from the Reserve Bank of India (RBI) as part of its pandemic relief measures announced on Monday is set to make small finance banks more competitive. The SFBs would get such funds at 4% for three years, which is significantly lower than their average cost of lending. The new facility would help them to get about 1-1.5% positive carry on the borrowed funds, even after investing the same amount into government securities as mandated by the central bank.

This window is an opportunity for SFBs with surplus g-secs to turn competitive as the lenders can deploy the available fund at a higher spread. Small banks generally lend at rates in the range of 10-20% depending on borrowers’ profile.

The banking system including small finance banks is sitting on a cash surplus of Rs 7.12 lakh crore.

Banks carrying surplus short-term securities could liquidate it and deploy the funds for lending.

SLTRO boost

Reserve Bank of India (RBI) has announced a special long-term repo operation (SLTRO) for small finance banks, amid the second wave of Covid cases in the country. The central bank will conduct the special operation of Rs 10,000 crore at repo rate, Das said.

“Small finance banks (SFBs) have been playing a prominent role by acting as a conduit for the last-mile supply of credit to individuals and small businesses,” Das said during an unscheduled address.

“To provide further support to small business units, micro and small industries, and other unorganised sector entities adversely affected during the current wave of the pandemic, it has been decided to conduct special three-year long-term repo operations of Rs 10,000 crore at repo rate for the SFBs, to be deployed for fresh lending of up to Rs 10 lakh per borrower,” Das said, adding that the facility will remain open till October 31, 2021.

Priority loans

The RBI also has decided to allow the classification of priority sector lending for loans given by small finance banks (SFB) to micro-finance institutions (MFI) for on-lending to individuals.

The decision has been taken to address the liquidity issues of MFIs amid the severe Covid crisis.

RBI Governor Shaktikanta Das said: “In view of the fresh challenges brought on by the pandemic and to address the emergent liquidity position of smaller MFIs, SFBs are now being permitted to reckon fresh lending to smaller MFIs (with asset size of up to Rs 500 crore) for on-lending to individual borrowers as priority sector lending.” This facility will be available up to March 31, 2022.



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