The Reserve Bank of India on Thursday allowed scheduled commercial banks to issue long-term bonds for funding long-term commitments.
This measure will help banks to reduce the asset liability mismatches when funding long-term projects. But this is subject to the rider that banks should first provide assistance to infrastructure projects before they can raise resources through such bonds.
These bonds will be subject to cash reserve ratio and statutory liquidity ratio requirements, applicable to normal deposits. The bonds will, however, not be eligible for deposit insurance, an RBI release said.
The RBI said with the gradual conversion of term lending institutions into banks and with a view to giving a boost to infrastructure lending, there was a need to allow banks to raise long-term bonds with a minimum maturity of five years.
So far, commercial banks have been allowed to raise long-term bonds as subordinated debt. The subordinated debt helps banks boost their capital adequacy ratio, as it forms the second tier of banks' capital.
The RBI said the long-term bonds should be fully paid, redeemable, unsecured and would rank pari passu along with other uninsured, unsecured creditors.
