RBI issues “draft guidelines” to enhance credit ratings of bonds raised for funding infrastructure projects
On Tuesday, the Reserve Bank of India (RBI) issued “draft guidelines,” with the evident aim of perking up the infrastructure sector. The “draft guidelines” will essentially give the banks the ability to provide partial credit enhancements to bonds which have been for financing infrastructure projects by companies/Special Purpose Vehicles (SPVs).
According to the “draft guidelines” issued by the RBI, banks will be allowed to provide partial credit enhancements to bonds, since investment in bonds of high – or fairly high – credit rating is the regulatory prerequisite for insurance and provident/ pension funds.
The key objective behind enabling banks to extend partial credit enhancement is the potential enhancement of credit ratings of the bonds which have been raised for setting set up of infrastructure projects. The move will primarily allow corporate houses to access funds from the corporate bond market.
In the present scenario, bonds issued for financing infrastructure projects by companies/SPVs are not able to fetch high ratings by the credit rating agencies, due to fact that implementation of a project at initial stages involves an inherent risk.
With RBI’s move to issue “draft guidelines” coming against the backdrop of substantial credit requirements of the infrastructure sector, comments/feedback is being sought by the bank – till June 30 – on the different proposals enlisted in the “draft guidelines.”
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