RBI allows savings bonds as collateral | business | Hindustan Times
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RBI allows savings bonds as collateral

business Updated: Oct 16, 2008 17:06 IST

The Reserve Bank has further relaxed banking norms by allowing holders of certain types of savings bonds to raise funds by pledging the government papers as collateral with cooperative banks.

Following the decision, the holders of savings bonds will be able to borrow money for their needs from the urban cooperative banks.

The central bank in a communication to all cooperative banks said that 7 per cent saving bonds, 2002, 6.5 per cent saving bonds, 2003, and 8 per cent savings (taxable) bonds, 2003, can be pledged as collaterals for obtaining loans.

"The holders of...Bonds will be entitled to create, pledge or hypothecation or lien in favour of scheduled banks in accordance with the Government Securities Act," the RBI said.

Earlier, savings bonds were not eligible as collateral for loans from banks, financial institutions and non-banking financial companies.

The RBI notification further said that the collateral facility will be available for loans extended to the bond holders only and not for third-party loans.

The decision follows the assurance given by the government that it will take measures to inject more liquidity into the system.