RBI has permitted banks to invest in debt instruments through mutual funds or exchange traded funds without allocating additional charges.

As per RBI's extant Basel III guidelines, if a bank holds a debt instrument directly, it would have to allocate lower capital as compared to holding the same debt instrument through a mutual fund- or exchange traded fund.

While unveiling the bi-monthly monetary policy review yesterday, RBI Governor Shaktikanta Das said it has been decided to harmonise the differential treatment existing currently.

He said, this will result in substantial capital savings for banks and is expected to give a boost to the corporate bond market.

The RBI Governor said the general market risk charge of 9 per cent will apply on both direct holdings, as well as through mutual funds or ETFs.