Banks to issue long-term local currency bonds: infrastructure projects and affordable housing to get new boost
The global rating agency Moody in its report mentioned that the Reserve Bank of India (RBI) new regulations which were issued last week which allowed the banks to issue long-term local currency bonds are considered as ‘credit positive’. Moody’s vice-president SrikanthVadlamani and associate analyst Nick Caes giving further insight on this development mentioned that these measures announced by RBI would encourage the domestic lenders to issue longer-term debt to reduce their cost.
Under the new regulations, the long-term bonds (defined as those with a tenure of more than seven years) are exempted from the cash and statutory reserve requirements. This exemption is valid as long as the bond proceeds are used to fund new long-term infrastructure projects and affordable housing.
This move is expected to improve the infrastructure conditions for the country and provide some thrust to the government’s dream of ‘’housing for all by 2022’’.Moody’s report also mentioned that by exempting these bonds from the cash and statutory reserve requirements, the RBI is effectively incentivising the banks to issue these bonds to reduce their costs.
Also, loans funded by this mechanism are exempted from the computation of adjusted net bank credit for the purpose of calculating priority sector lending requirement.
Moody’s report also stated that the banks with the largest exposure to infrastructure and mortgage loans are ICICI, Axis and State Bank of India. They would be the first beneficiaries of these norms.
Source- Financial Chronicle
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