In line with the announcement made in the Union Budget last week, the RBI has exempted long term bonds from mandatory reserve requirements, if the money raised is used for funding infrastructure and affordable housing projects.

In a notification issued from Mumbai, the RBI has said that banks can issue long-term bonds with a minimum maturity of seven years to raise resources for lending to long term projects.

The RBI has said that such bond issuances will not be counted as part of the banks’ normal liabilities and hence will be exempted from CRR and SLR. It adds that loans given out to infrastructure companies will also be excluded while calculating a banks’ priority sector lending targets.

RBI has said that these bond sales can be done through public issuance or private placement, adding that such bonds that qualify for reserve exemptions cannot be sold to other lenders.

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).