RBI FAQ's on Targeted Long Term Repo Operations (TLTROs)

OVERVIEW

RBI governor vide Press Conference dated 27.03.2020 has discussed about various relaxation due to COVID 19.

Reserve Bank will conduct auctions of targeted term repos of up to three years tenor of appropriate sizes for a total amount of up to ₹ 1,00,000 crore at a floating rate linked to the policy repo rate.

Q1: Will banks be required to maintain specified securities for the amount received in TLTRO in HTM book at all times?

Ans: Yes. The banks will have to maintain amount of specified securities for the amount received in TLTRO in in its HTM book at all times till maturity of TLTRO.

Q2: Will the bank have to necessarily continue to hold an amount equivalent to what it was holding as on March 26, 2020 in its HFT/AFS portfolio for the tenor of TLTRO borrowing?

Ans: Under TLTRO scheme, banks will have to invest the amount borrowed under TLTROs in fresh acquisition of securities (i.e., over and above their outstanding statement in specified securities it was holding as on March 26, 2020) from primary/secondary market. However, participation in TLTRO scheme will not impinge on the existing investment of the bank and the bank may continue to operate their AFS/HFT portfolio, as hitherto, in terms of extant regulatory/internal guidelines.

Q3: Is there any maturity restriction on the securities to be acquired under TLTRO scheme?

Ans: There is no maturity restriction on the specified securities to be acquired under TLTRO scheme. However, the outstanding amount of specified securities in bank’s HTM portfolio should not fall below the level of amount availed under TLTRO scheme.

Q4: Will investment in a longer tenor specified security continue to be classified as HTM even after maturity of TLTRO?

Ans: The specified securities acquired under TLTRO scheme will be allowed to remain in HTM portfolio till their maturity.

Q5: Can a bank categorize specified securities acquired under TLTRO scheme as AFS or HFT?

Ans: The specified securities acquired under TLTRO scheme will be classified in HTM category. However, if a bank decides to classify such securities under AFS/HFT category at the time of acquisition, it will not be allowed to later shift such securities to HTM category and it should maintain sufficient records to demonstrate and separately identify securities purchased under TLTRO scheme within the AFS/HFT portfolio. Further, all regulations applicable to securities classified under AFS/HFT including those on valuation, will be applicable on such specified securities.

Q6: What happens if a bank fails to deploy the funds availed under TLTRO scheme in specified securities within the stipulated timeframe?

Ans: The banks have already been given sufficient time to deploy funds availed under TLTRO scheme. It has now been decided to allow up to 30 working days for deployment in specified securities for those banks who have availed funds under the first tranche of TLTRO conducted on March 27, 2020. However, if a bank fails to deploy funds within the specified time frame, the interest rate on un-deployed funds will increase to prevailing policy repo rate plus 200 bps for the number of days such funds remain un-deployed. This incremental interest will have to be paid along with regular interest at the time of maturity.

Q7: Under TLTRO scheme, the specified eligible instruments will have to be acquired up to fifty per cent from primary market issuances and the remaining fifty percent from the secondary market. Is this limit fungible between primary and secondary market?

Ans: The deployment of funds availed under TLTRO in primary market cannot exceed fifty percent of the amount availed. Apart from the above stipulation, the limits are fungible between primary and secondary market deployment.

Source: https://www.rbi.org.in/Scripts/FAQView.aspx?Id=134