Long Term Repo Operation(LTRO)

2 min read

News:The Reserve Bank of India has received ₹1.71 trillion in the third long-term repo operation(LTRO) conducted for an amount of Rs 25,000 crore.

Facts:

About LTRO:

  • Long Term Repo Operation(LTRO) is a mechanism to facilitate the transmission of monetary policy actions and to inject liquidity into the banking system to boost credit growth.
  • Under this,the central bank provides one-year to three-year money to banks at the prevailing repo rate accepting government securities with matching or higher tenure as the collateral.
  • Usually,loans with higher maturity periods (here like 1 year and 3 year) will have higher interest rates compared to short term (repo) loans.
  • The operations are being conducted on Core Banking Solution (E-KUBER) platform.

Significance of LTRO:

  • Enhance liquidity in the banking system by Rs 1 lakh crore.
  • It is expected to bring down short-term rates and also boost investment in corporate bonds.
  • Bring down the cost of funds for banks without effectively cutting deposit rates.
  • Encourage banks to push transmission of already announced interest rate cuts.

Additional information:

About Repo and Reverse Repo:

  • Repo Rate is the rate at which the RBI lends money to the banks for a short term.
  • Reverse Repo Rate is the short term borrowing rate at which RBI borrows money from banks.

About E-Kuber:

  • E-Kuber is the Core Banking Solution(CBS) of Reserve Bank of India introduced in 2012.
  • It provides a high degree of access to commercial banks and other institutions to their current account with the RBI.