The Reserve Bank of India (RBI) on Monday announced the second tranche of the targeted long-term repo operations (TLTROs) having a tenor of three years to be conducted on Friday through which it will lend Rs 25,000 crore to banks. Liquidity availed under the scheme has to be deployed in investment grade corporate bonds, commercial paper, and non-convertible debentures over and above the outstanding level of banks' investments in these bonds as on March 27, 2020, the RBI had notified.
According to the central bank, funds availed under this tranche of TLTRO would have to be deployed within 30 working days from the date of the operation. This is noteworthy because in the first tranche, the RBI had said that the funds will have to be deployed within 15 working days from the date of the operation.
Post the announcement of TLTROs, a highly illiquid corporate bond market had sprung back to life with renewed buying interest seen in the secondary market. However, dealers say that one will have to watch out the primary market because issuances have been limited in recent times. This is crucial because banks will be required to acquire up to 50% of their incremental holdings of eligible instruments from primary market issuances and the remaining 50% from the secondary market, including from mutual funds and non-banking finance companies.
The first of the TLTROs was conducted last Friday and had received a significant response from the market where the central bank received bids worth Rs 60,500 crore against a notified amount of Rs 25,000 crore.