RBI likely to allow banks to issue infrastructure bonds
In a move which underscores an evident attempt by the Reserve Bank of India (RBI) to give infrastructure lending a notable boost, the country’s central bank will likely give the banks the ability to issue infrastructure bonds.
The infrastructure bonds which the banks will be allowed to issue will not attract provisions like the mandatory cash reserve ratio (CRR) and statutory liquidity ratio (SLR).
The infrastructure bonds which the RBI is likely to allow the banks to issue will probably be subscribed by both retail and institutional investors. The most likely buyers of these bonds will be pension funds and insurance funds. Despite the fact that the buyers of the bonds will have to invest the funds in the infrastructure sector, there will be no direct investment risk to the infrastructure sector.
With infrastructure being one of the key focus areas for the development of India’s economy, the RBI’s move to allow banks to issue infrastructure bonds implies that the central bank recognizes the importance of facilitating banks to fund infrastructure loans, particularly because banks are the main lenders to the infrastructure arena.
Along with allowing banks to issue infrastructure bonds, the RBI will also probably give the banks the flexibility for classification of loans as standard assets, irrespective of whether or not the loan repayment is completed within a 10-year period. The apparent objective behind the proposed move is to pave the way for structuring the loan over a period of 25 years.
Source – The Financial Express
Cash Reserve Ratio, Cash Reserve Ratio (CRR), cash reserve ratio rates, cash reserve ratio(CRR), Reserve Bank of India, tax free infrastructure bonds
