Repo auction gets poor response 

#GS3 #Economy  

May indicate a reluctance on the part of banks to lend to NBFCs 

  • The first auction of the second tranche of Reserve Bank of India’s (RBI) targeted long term repo operations (TLTRO 2.0), which were meant for liquidity support to non-banking financial companies, (NBFCs), received poor response as total value of bids received from banks was almost 50% less than the notified amount.  
  • The RBI received 14 bids worth ₹12,850 crore in the auction that was conducted on Thursday, against a notified amount of ₹25,000 crore, of three-year tenor.  
  • While announcing the auction, the RBI had said that the funds availed from Thursday’s auction should be deployed in investment grade bonds, commercial paper (CPs) and non-convertible debentures (NCDs) of NBFCs.   
  • At least 50% of the total funds availed of by the banks was mandated to be deployed in small and mid-sized NBFCs.  
  •  NBFCs, including housing finance companies and MFIs, are facing stretched liquidity conditions as banks turned risk-averse and choked lending.   
  • Adding to the woes, banks have not extended the three-month repayment moratorium to the NBFCs. NBFCs, however, extended such a moratorium to their customers. As a result, fund inflow for NBFCs has been severely hit.  
  • A Crisil report estimated that NBFCs rated by it will see debt obligation worth ₹1.75 lakh crore maturing by the end of June.  
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