BackRBI allows banks to lend against infra bonds
The central bank said the move was aimed at providing 'liquidity to retail investors'
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Mumbai: Reserve Bank of India (RBI) on Thursday allowed banks to use long-term bonds issued to finance infrastructure and affordable housing projects as collateral to lend to individuals.
RBI said the move was aimed at providing “liquidity to retail investors." However, banks are not permitted to lend against such bonds issued by competitors, the central bank said.
“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, ₹ 10 lakh per borrower, and tenure of loan should be within the maturity period of the bonds," RBI said.
In July, following a budget announcement by the finance minister, RBI had allowed banks to raise funds by selling long-term bonds that are exempt from the central bank’s reserve requirements and priority sector lending targets.
Banks have to set aside 4% of their deposits as cash reserve ratio (CRR) and mandatorily invest 22% of their funds in government bonds. They also have to compulsorily lend 40% of their funds to the so-called priority segment which includes small businesses, agriculture and weaker sections of the society.
ICICI Bank Ltd, Kotak Mahindra Bank Ltd, Andhra Bank and Axis Bank Ltd have already raised money through this route.
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