RBI allows banks to extend loan against long term bonds

The Reserve Bank of India (RBI) Thursday allowed banks to extend loans to individuals against long term bonds issued by them so as to provide liquidity to the retail investors.

The loan against the bonds could be given for affordable housing.

In a circular, the RBI said to provide liquidity to retail investors in such long term bonds, it banks can extend loans to individuals against the bonds issued by them.

"Boards of the banks should lay down a policy in this regard prescribing suitable margins, purpose of the loan and other safeguards. Further, such loans should be subject to a ceiling, say, Rs.10 lakh per borrower, and tenure of loan should be within the maturity period of the bonds," it said.

The central bank however clarified that banks are not permitted to lend against such bonds issued by other banks.