In order to encourage infrastructure development and affordable housing, RBI on Tuesday exempted long term bonds from mandatory regulatory norms like CRR and SLR if the money raised is used for funding of such projects.
"Banks can issue long-term bonds with a minimum maturity of seven years to raise resources for lending to (i) long term projects in infrastructure sub-sectors, and (ii) affordable housing," the Reserve Bank said.
RBI said that apart from what is technically defined as infrastructure, affordable housing is another segment of the economy which requires long term funding.
The central bank said it intends to "ease the way for banks to raise long term resources to finance their long term loans to infrastructure as well as affordable housing".
The instructions are in pursuance of Finance Minister Arun Jaitley's Budget speech in which he had said "banks will be encouraged to extend long term loans to infrastructure sector with flexible structuring to absorb potential adverse contingencies, sometimes known as the 5/25 structure".
Under the 5/25 structure, bank may fix longer amortisation period for loans to projects in infrastructure and core industries sectors, say 25 years, with periodic refinancing, say every 5 years.
RBI issued instructions to banks specifying operational guidelines and incentives in the form of flexibility in loan structuring and refinancing.
It granted exemptions from regulatory pre-emptions, such as, cash reserves ratio (CRR), statutory reserves ratio (SLR) and Priority Sector Lending (PSL).
As per RBI regulations, banks are required to keep a portion of deposits as Cash Reserve Ratio (CRR) with the central bank and park certain portion in government securities known as Statutory Liquidity Ratio (SLR).
"The objective of these instructions is to mitigate the Asset-Liability Management (ALM) problems faced by banks in extending project loans to infrastructure and core industries sectors, and also to ease the raising of long term resources for project loans to infrastructure and affordable housing sectors" it said.
Banks have been seeking permission for longer tenor amortisation of the loan, say 25 years with periodic refinancing of balance debt, RBI said.
It further said rupee denominated bonds should be issued in "plain vanilla form" without call or put option with a fixed or floating rate of interest.
Lending for affordable housing means loans eligible under priority sector, and loans up to Rs 50 lakhs to individuals for houses costing up to Rs 65 lakhs located in the six metropolitan centres. For other areas, it covers loans of Rs 40 lakhs for houses with values up to Rs 50 lakhs.