Banks May Cross hold other Banks Long Term Bonds for Financing of Infrastructure and Affordable Housing: RBI

RBI/2014–15/618 DBR.BP.BC.No.98/08.12.014/2014–15

June 01, 2015

Please refer to our cir­cu­lar DBOD.BP.BC.No.25/08.12.014/2014–15 dat­ed July 15, 2014 allow­ing banks to issue long term bonds, with exemp­tions from cer­tain reg­u­la­to­ry pre-emp­tions, for their financ­ing of infra­struc­ture and afford­able hous­ing loans. Fur­ther, in order to pro­vide liq­uid­i­ty to retail investors in such bonds, we also allowed banks; vide cir­cu­lar DBOD.BP.BC.No.50/08.12.014/2014–15 dat­ed Novem­ber 27, 2014, to extend loans to indi­vid­u­als against such long-term bonds issued by them.

2. In terms of para­graph 13 of cir­cu­lar dat­ed July 15, 2014, present­ly banks are not per­mit­ted to cross-hold such bonds among them­selves. It has been rep­re­sent­ed to us that such pro­hi­bi­tion on cross-hold­ing inhibits the liq­uid­i­ty and trad­abil­i­ty of these bonds, as banks are the major par­tic­i­pants in the debt market.

3. On a review, it has been decid­ed that hence­forth, banks can invest in the long term bonds issued by oth­er banks under the pro­vi­sions of the above-men­tioned cir­cu­lar dat­ed July 15, 2014. How­ev­er, the pri­ma­ry objec­tive of allow­ing reg­u­la­to­ry exemp­tions on CRR and SLR require­ments as well as pri­or­i­ty sec­tor lend­ing is to encour­age issue of long term bonds for lend­ing to infra­struc­ture projects and afford­able hous­ing. To pre­serve this objec­tive and in order to pre­vent dou­ble count­ing of reg­u­la­to­ry exemp­tions allowed, such invest­ments will be sub­ject to con­di­tions as follows:

  1. Banks’ invest­ment in such bonds will not be treat­ed as ‘assets with the bank­ing sys­tem in India’ for the pur­pose of cal­cu­la­tion of NDTL.
  2. Such invest­ments are not to be held under HTM category.
  3. An invest­ing bank’s invest­ment in a spe­cif­ic issue of such bonds will be capped at 2% of the invest­ing bank’s Tier 1 Cap­i­tal or 5% of the issue size, whichev­er is lower.
  4. An invest­ing bank’s aggre­gate hold­ing in such bonds will be capped at 10% of its total Non-SLR investments.
  5. Not more than 20% of the pri­ma­ry issue size of such bond issuance can be allot­ted to banks.
  6. Banks can­not hold their own bonds.

6. All oth­er terms and con­di­tions as men­tioned in cir­cu­lars DBOD.BP.BC.No.25/08.12.014/2014–15 dat­ed July 15, 2014 and DBOD.BP.BC.No.50/08.12.014/2014–15 dat­ed Novem­ber 27, 2014 will remain unchanged. Fur­ther, RBI’s rel­e­vant extant pru­den­tial norms will be applic­a­ble on such issuances and investments.

Yours faith­ful­ly,

(Sudar­shan Sen)
Chief Gen­er­al Manager-in-Charge

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