Highly-rated firms accounted for a majority of the funds disbursed to non-banking financial companies (NBFCs) under the central bank’s targeted long-term repo operations (TLTRO). A rating-wise analysis shows that firms with ‘AAA’ and ‘AA’ ratings accessed 88% of disbursements made under the targeted liquidity operations, the Reserve Bank of India (RBI) said in its report on the trend and progress of banking in India for FY20.
The TLTROs were aimed at providing system-level liquidity as well as targeted liquidity to sectors and entities experiencing liquidity constraints and restricted market access. However, the data put out by the central bank suggests that stronger companies may have benefited the most from these operations.
A study of the distribution of TLTRO funds reveals that Rs 76,843 crore was requested by NBFCs and housing finance companies (HFCs), four-fifths of which has been disbursed. NBFCs garnered 60% of the total disbursement. “Non-deposit taking NBFCs, particularly NBFCs-ND-SI (systemically important non deposit-taking NBFCs), have been major beneficiaries,” RBI said.
Within NBFCs-ND-SI, investment and credit companies (NBFCs-ICC) and infrastructure finance companies (IFCs) cornered 88% of the funds. “Furthermore, a rating-wise analysis shows that these firms were also well-rated, with ‘AAA’ and ‘AA’ rated firms accessing 88% of disbursements,” the report added.
NBFCs-ND-SI, which accessed TLTRO funding, constitute 57.4% of the NBFC universe. “These firms also had lower GNPA (gross non performing asset) ratios and were better capitalised than other NBFCs-ND-SI,” RBI said, adding that TLTROs have proved to be a valuable tool in its arsenal in tackling the disruptions caused by Covid and improving the resilience of the NBFC sector.
Among the measures taken by RBI to counter the disruption brought on by the pandemic was the injection of Rs 1.12 lakh crore through TLTRO 1.0 for investment in corporate bonds, commercial paper, and non-convertible debentures and TLTRO 2.0 auctions for investment in investment grade bonds, commercial paper, and non-convertible debentures of NBFCs, with at least 50% of the total amount availed going to small and mid-sized NBFCs and micro finance institutions (MFIs).
The report credited the TLTRO scheme with having partly offset the slowdown in credit to NBFCs as banks invested in their debt papers under the scheme.