RBI to conduct first SLTRO for small finance banks

The Reserve Bank of India recently announced that it is to conduct the first Special Long Term Repo Operation (SLTRO) of Rs 10,000 crores for Small Finance Banks.

What is the plan?

The RBI will conduct the SLTRO for each month starting from May 2021. This is to continue till October 2021. The SLTRO will be valid for three years. All the Small Finance Banks shall participate in the SLTRO. However, these banks should make sure that the amount borrowed from RBI should be lent only to specified segments such as unorganised sectors and small business units.

Background

The Reserve Bank of India recently announced a slew of measures to boost the economy. This included opening of on-tap liquidity window of Rs 50,000 crores at repo rate 4%, asking banks to create COVID Loan Book, etc. Conducting SLTRO for Small Finance Banks is one such measure.

What is Special Long Term Repo Operations?

It is generally called the Long-Term Repo Operations. The Special Long Term Repo Operations is a tool under which RBI provides money to the banks at repo rate. It accepts the government securities as collateral. It is usually provided for a period of one year to three years.

Significance of SLTRO

This is highly beneficial for the banks as they get long term funds at lower rates. This will make the banks to reduce the interest banks for borrowers. Thus, Special Long Term Repo Operations will help Reserve Bank of India to ensure that the banks reduce their lending rates without reducing the policy rates.

Month: Current Affairs - May, 2021