RBI relaxes CRR, SLR and PSL norms for banks issuing infra bonds

With a view to promote infrastructure development and affordable housing, the Reserve Bank of India (RBI), exempted long-term bonds from the mandatory regulatory norms such as the Cash Reserve Ratio (CRR), the Statutory Liquidity Ratio (SLR) and Priority Sector Lending (PSL) if the money raised is utilized for financing of such projects. The easing of norms comes close on the heels of Finance Minister Arun Jaitley’s budget speech in which he had said that banks will be encouraged to provide long term loans to infrastructure sector with flexible structuring to absorb potential adverse contingencies, sometimes called as the “5/25 structure”.

As per RBI:

  • Banks issuing long-term bonds with a minimum maturity of 7 years to raise resources for lending to i) long-term projects in infrastructure sub-sectors, and (ii) affordable housing have been exempted from regulatory pre-emption, such as, the CRR, the SLR and Priority Sector Lending (PSL). Banks are required to keep a portion of deposits as CRR with the central bank and park certain portion in government securities known as SLR.
  • Banks may use the “5/25 structure” under which bank may fix longer amortization period for loans to projects in infrastructure and core industries sectors, suppose 25 years, with periodic refinancing, say every 5 years.
  • The objective of these instructions is to extenuate the Asset-Liability Management (ALM) problems faced by banks in providing project loans to infrastructure and core industries sectors, and also to relax the raising of long term resources for project loans to infrastructure and affordable housing sectors.
  • Banks should issue rupee denominated bonds in ‘plain vanilla form’ without call or put option with a fixed or floating rate of interest.
  • Affordable housing lending includes loans eligible under the priority sector, and loans up to Rs.50 lakh to individuals for houses costing up to Rs.65 lakh located in the 6 metropolitan cities. For other areas, it includes loans of Rs.40 lakh for houses costing up to Rs.50 lakh.

Realtors’ body CREDAI, appreciated the RBI’s move to ease norms for banks to raise long-term funds for financing affordable housing, saying this would lead to cheaper credit for such projects.

According to the RBI, while banks have been raising resources in a significantly, issuance of long-term bonds for funding loans to infrastructure sector has not gathered momentum at all. Infrastructure and core industries projects have long gestation periods and need large capital investments.

India seeks to invest $1 trillion in infrastructure sector by 2017, half of which is expected to come from the private sector.



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