Repo auction gets poor response

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

Out of steam: At least 50% of funds raised was mandated to be deployed by banks in 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.

“The total bids that were received amounted to ₹12,850 crore, implying a bid to cover ratio (i.e., the amount of bids received relative to the notified amount) of 0.5,” the RBI said.

“Will review the auction results and take a view in the matter,” the RBI added.

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.

“Limited participation by banks in the TLTRO 2.0 clearly highlights the banks’ reluctance to lend to mid-size and small NBFCs and MFIs in the current situation,” said Vydianathan Ramaswamy, director and head, financial sector ratings,Brickwork Ratings.

“Given the lack of risk appetite in banks, a structure with partial credit guarantee by the GoI, similar to the PCG [partial credit guarantee] scheme launched last year for securitisation, may be the only viable option to ease liquidity challenges of NBFCs,” he said.

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.