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To help banks overcome mismatches arising from the tenure of loans being longer than those of deposits and to encourage them to lend more to the infrastructure and affordable housing segments, the central bank on Tuesday said they can issue long-term bonds which will be exempt from regulatory pre-emptions.
Besides issuing instructions on floating bonds with a minimum seven-year maturity for financing infrastructure and affordable housing, the Reserve Bank of India on Tuesday also came up with modalities for banks for flexible structuring of long-term project loans to infrastructure and core industries.
The central bank’s instructions come in the wake of Finance Minister Arun Jaitley proposing in his Budget speech last week that long-term financing for infrastructure has been a major constraint in encouraging larger private sector participation in this sector.
Regulatory pre-emptions that banks are subject to include cash reserve ratio (the slice of deposits that banks have to park with RBI); statutory liquidity ratio (the portion of deposits that banks have to invest in Central and State Government bonds); and priority sector lending (compulsory lending to agriculture, micro and small enterprises, housing, etc).
The RBI said there will not be any restrictions on the quantum of such bonds to be issued by banks.
However, the regulatory incentives (exemption from CRR, SLR and priority sector lending) will be restricted to the bonds that are used to incrementally finance long-term projects in infrastructure and loans for affordable housing.
Long-term bonds will be exempt from CRR/SLR requirements, subject to a “ceiling of the eligible credit.”
Meanwhile, in a bid to give a fillip to the housing sector, the RBI has redefined affordable housing.
While lending to affordable housing is defined as housing loans eligible for priority sector lending by the RBI (includes loans to individuals up to ₹25 lakh in metropolitan centres and ₹15 lakh in other centres for purchase/construction of a dwelling unit per family), the RBI has also included housing loans to individuals up to ₹50 lakh for houses of value up to ₹65 lakh in the six metros.
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