Reserve Bank of India took a lot of steps to stabilize Indian economy, this year. One of their efforts included improving the market for long-term bonds by selling short-term treasury bills while purchasing long-term government bonds. This move brought down the yield on 10-year government securities by 16 basis points (100 bps = 1 %) down to 6.06%. But, reports are showing that banks have availed only half of ₹25,000-crore refinance offered by RBI for lending to small-scale non-banking finance companies.
RBI had opened up a special system to support NBFCs as they are excluded from the 3-month moratorium on loans that businesses, affected due to lock-down, got. RBI had announced that it would offer cheap 3-year funds through targeted long-term repo, for up to ₹50,000 Crore, in the targeted long term repo operation (TLTRO 2.0). The catch was that only banks that lent to NBFCs could avail these funds while half of these reserves were earmarked for small finance companies. In Thursday out of the ₹25,000-crore TLTRO, banks ended up applying for only ₹12,800 Crore.
Since the beginning of the coronavirus pandemic and the subsequent 40-day nationwide lock-down, the RBI has opened the liquidity tap, leaving banks with nearly Rs 7 lakh crore of surplus funds. By not availing of TLTRO 2.0, banks are sending a signal that they are wary of credit risks. A day before announcing ‘Operation Twist’ on Thursday, banks bought a record ₹45,000 crore of government treasury bills at rates below the RBI’s reverse repo rate of 3.75%.