On Wednesday, while announcing the fourth TLTRO of Rs 25,000 crore, the RBI said: “The maximum amount that a particular bank can invest in the securities issued by a particular entity or group of entities out of the allotment received by it under the TLTRO shall be capped at 10 per cent.”
The first TLTRO facility took place on March 27, and so far Rs 1 trillion has already been deployed. There will be more TLTROs, but banks
are only investing in good names such as HDFC, Sundaram Finance, and even government entities such as REC, PFC, and ONGC etc.
The RBI had clarified that banks
have 30 days to deploy the funds taken under TLTRO facility. However, if a bank fails to deploy funds within that, “the interest rate on un-deployed funds will increase to prevailing policy repo rate, plus 200 bps, for the number of days such funds remain un-deployed.” This incremental interest will have to be paid along with regular interest at the time of maturity, the RBI had said.
Banks have started deploying the funds, but they have been used to buy AAA papers.
A top public sector executive said through this TLTRO, the RBI wants to push the liquidity. “And then you are asking banks to invest in NCDs, CPs and corporate bonds of well rated corporates that includes NBFCs also. It is not clear what is well rated. If I am risk averse, I will take the guideline of RBI to interpret it as only ‘AAA’.”
“Question is how many triple AAAs are around,” said the senior banker. With rating agencies rapidly downgrading ratings, or revising outlook downwards, provision burden is already increasing for banks.
The TLTRO facility comes with a condition that 50 per cent of money taken should be invested in primary issue and 50 per cent in secondary issue for bonds. The investment would be over and above the exposure of the bank in the firm, and it won't be counted in the large exposure framework.
“The question that comes up then is this particular window was opened up to improve liquidity that should go to the corporate. Now the liquidity goes into market in the case of secondary issue and does not reach issuer of paper. The rules need a relook since aim is to give support to those facing liquidity pressure,” he said.
In the absence of a dedicated liquidity line, the bond market is getting apprehensive, especially as a huge amount of money is coming for due.
According to the data from Bloomberg, Rs 52,414 crore of corporate debt is falling due in April, of which Rs 1,992 crore has been paid. In May, the due is of Rs 46,145 crore, while it is Rs 72,632 crore in June. These include payment due in dollar bonds.
In the absence of a healthy corporate bond market
amid a lockdown, companies are resorting in raising CPs to take care of working capital loans, but the new issuances are also only a few, bond dealers say.
The Securities Exchange Board of India (Sebi) has also extended three month moratorium on interest payment. It has advised rating agencies not to term non-payment of interest as default. However, the principle has to be paid. And that is causing some unease among the investors of these bonds.
However, given that over 80 per cent of the bonds are issued by AAA- and AA-rated firms, the investors are certain that there would be no default. This is one of the reasons why banks are deploying their funds only with better rated firms.