We are a country with over 100 crore people, and managing all finance-related issues of that large population is a big deal. That’s why India has set up a money market regular, capital market regulator, and many more. We are discussing all these due to the 5th Feb 2021 press release of RBI. RBI issued a press release titled “On Tap Targeted Long-Term Repo Operations – Inclusion of NBFCs”, The press release is simple in its intent, but a layman can not understand the context and meaning of that press release. Here we are explaining every minute point in details:-
RBI stands for Reserve Bank of India. This bank is called money market regulator, bank of Banks, Bank of the Government, Custodian of the Indian Currency, and many more. The work area of RBI ranges from inflation control, money circulation, banks regulation, Forex Management, and others. The government established it in 1935 and is headquartered, in Mumbai.
Non-Banking Financial Institution (NBFC) is paramount in holding stakes in our country’s solvent development. They help in our government endeavor of financial inclusion and credit facility to all. They are registered under the Companies Act, 1956 and generally do the following business:-
As the list indicated, they have a vast area of work. Some NBFCs are Bajaj Finance, Tata Capital, L& T infotech, Muthoot Finance, Aditya Birla Finance, etc.,
Many people do not understand, Why the rbi issued this sort of press release? Here are some reasons for releasing that.
So the challenges of NBFCs are many, and they always go to RBI and others with their issues. In that background, RBI issued the press release on 05th Feb 2021.
Vide the press release, RBI has allowed banks to give credit facility to NBFCs under the targeted long–term repo operations scheme (TLTRO). On 5th Feb 2021, RBI also released its quarterly monetary policy and stressed the need to give a booster to NBFCs. RBI praised the role of NBFCs in financial inclusion and extending credit to the rural, uneducated, and poor people. TLTRO scheme started in March 2020 in the background of Covid-19 pushed lockdown. Here RBI included five sectors earlier and later added five more sectors into that scheme. Banks give a more focused approach towards that sector and will support through better lending in TLTRO.
TLTRO scheme gives an entity option to get Rs- 1 Lakh crore funds with a floating rate of interest. The interest rate depends on the policy repo rate, and an entity is, given three years to pay back. After RBI inclusion into TLTRO, NBFCs will get more funds from Banks, and they may utilize that fund for their further growth.
In simpler terms, RBI has included all the NBFCs companies under the priority sector. So it will get more credit from banks.
RBI has taken a precise step in the right direction. We are hopeful that it will go in helping NBFCs in a long way.
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