RBI allows banks to invests in infra bonds of other lenders

In a bid to boost infrastructure development, the Reserve Bank today allowed banks to invest in long term infra bonds of other lenders.
"On a review, it has been decided that henceforth, banks can invest in the long term bonds issued by other banks," RBI said in a notification.
However, it said, "the primary objective of allowing regulatory exemptions on Cash Reserve Ratio and Statutory Liquidity Ratio requirements as well as priority sector lending is to encourage issue of long term bonds for lending to infrastructure projects and affordable housing."
Such long term bonds are exempted from mandatory regulatory norms like CRR and SLR if the money raised is used for funding of such projects.

Banks can issue long-term bonds with a minimum maturity of seven years to raise resources for lending to long term projects in infrastructure sub-sectors, and affordable housing.
To preserve this objective and in order to prevent double counting of regulatory exemptions allowed, such investments will be subject to conditions including not more than 20 per cent of the primary issue size of such bond issuance can be allotted to banks.

At the same time, banks cannot hold their own bonds and banks' investment in such bonds will not be treated as 'assets with the banking system in India' for the purpose of calculation of total deposits, it said.

"Such investments are not to be held under HTM category," it said.
"An investing bank's investment in a specific issue of such bonds will be capped at 2 per cent of the investing bank's Tier 1 Capital or 5 per cent of the issue size, whichever is lower," it added.