LTROs have been used by the European Central Bank (ECB) since March 2008 to fight the financial crisis there. In June 2009, ECB announced 12-month LTRO and in December 2011, it brought in three-year LTRO. The instruments were hugely popular with banks, and the ECB did close to ^490 billion of such operations. However, the long-term efficacy of the instruments remained unclear.
The RBI, in its statement said, LTRO conducted under the scheme will be in addition to the existing liquidity adjustment facility (LAF) and marginal standing facility (MSF). The operations will be at a fixed rate.
“Banks would be required to place their requests for the amount sought under LTRO during the window timing at the prevailing policy repo rate. Bids below or above policy rate will be rejected,” the RBI
said in a statement. In case of over-subscription, the allotment will be done on pro-rata basis, the RBI said. The minimum bid amount would be Rs 1 crore and multiples thereof. The eligible collateral for LTROs and the applicable haircuts will remain the same as applicable for LAF, the RBI said.