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RBI to conduct SLTRO for Small Finance Banks

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RBI to conduct SLTRO for Small Finance Banks

RBI to conduct SLTRO for Small Finance Banks

  • Recently the Reserve Bank of India (RBI) announced that it would conduct Special Long Term Repo Operation (SLTRO) for small finance banks.
  • The first Special LongTerm Repo Operation of the Reserve Bank of India will be conducted with Rs10,000

Keypoints

  • It may be noted that the Reserve Bank of India had announced some measures to boost the economy. For example, opening an on-tap liquidity window of Rs50,000crore at a repo rate of 4%, asking all banks to make a COVID loan book.The RBI had allowed the operation of SLTRO for small finance banks under these measures.
  • The operation of SLTRO will continue for each month from May 2021 until October This SLTRO has a validity of three years, in which all small finance banks will participate.
  • But, these banks should ensure that the amount borrowed from the RBI should be lent only in sectors such as unorganized sectors and small business units.

Special Long Term Repo Operations (SLTRO)

SLTRO is also mainly referred to as Long-Term Repo Operations. Special LongTerm Repo Operations are a tool under which the RBI provides money to banks at the repo rate. The duration of which can usually be from one year to three years. It accepts government securities as collateral.

Benefits of Special Long Term Repo Operations

  • This is very useful for banks, as it gives them long-term funds at low rates. This allows banks to avail low interest for the borrowers.
  • Thus, special long term repo operations will help the Reserve Bank of India to ensure that banks reduce their lending rates without reducing policy rates.

Source: PIB

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