Banks Free To Float Long-term Bonds For Core Sector Finance

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Mumbai, May 18: The Reserve Bank of India (RBI) has allowed banks to raise long-term bonds for financing infrastructure projects. The move will boost infrastructure lending and also take care of the asset liabilities mismatch of banks arising out of financing such projects with long gestation period with relatively short-term liabilities.

Such long-term bonds will have a minimum maturity of five years and to the extent of their exposure of residual maturity of more than five years to the infrastructure sector, the RBI said in its annual policy statement for 2004-05.

FE reported on April 29 that RBI is considering allowing banks to raise long-term debts as a liability product.

Even now, banks are allowed to float bonds, but for augmenting their Tier-II capital and not as a liability product.

Through issuance of long-term bonds, banks with expertise and skill-set required for financing such projects will be able to finance long-term infrastructure projects like roads, telecom and power, said a senior executive with IDBI Bank.

Bankers hope that other long-term retail assets such as housing loans should also have been eligible for raising long-term resources.

AV Birla group company Grasim Industries chief financial officer DD Rathi said that the RBI should have been stricter with regard to banks being allowed to raise long-term bonds for infrastructure projects.

The issue is not just about financing projects. There should be a proper appraisal mechanism as regards disbursement and servicing of the loans.