MUMBAI (Reuters) - The Reserve Bank of India said on Tuesday it will allow long-term bonds raised by banks for infrastructure lending to be exempted from mandatory reserve requirements, in line with the government’s announcement in the budget last week.
The bonds issued by banks, to be aimed at the infrastructure sector including affordable housing, will be required to have a minimum tenure of seven years.
The bonds would need to be “plain vanilla”, without a call or put option, and can be issued with a fixed or floating rate of interest, the RBI said. Bond sales can be done through public issuance or private placement, the central bank added.
Bonds raised by banks that qualify for reserve exemptions cannot be sold to other lenders.
Bonds raised with these conditions would be exempt from the statutory liquidity ratio or cash reserve requirements. They will also be exempt from priority sector lending targets.
Under current rules, banks must keep a portion of bonds sold with the RBI as reserves.
RBI's operational details come after Finance Minister Arun Jaitley unveiled a proposal to exempt bonds for infrastructure lending from reserve requirements last week at the government's maiden budget. For a detailed press release, please see: [bit.ly/1tMk6PE]
Reporting by Neha Dasgupta; Editing by Anupama Dwivedi