Banks can give loans up to Rs 10 lakh to retail investors against infra bonds

Mumbai: The Reserve Bank of India has allowed banks to give loans to individuals against investment in long-term bonds issued to raise money for lending to infrastructure and affordable housing projects.

The purpose in giving such loans is to provide liquidity to retail investors. Banks can give loans up to Rs 10 lakh per borrower. The tenure should be within the maturity period of the bonds, RBI has told banks.

Bankers said it was not clear how this would push the growth in loans for now. It seemed more of an enabling provision, useful somewhere in the future. It is one more secured instrument available for the investor to pledge and get a loan.

At present, banks do give a loan against fixed deposits. The rate charged for such an arrangement is the interest rate on the FD plus 100-150 basis points, subject to risk premium norms, bankers said.

RBI said each bank can lend only against such bonds issued by it. It is barred from lending against bonds issued by other banks. A bank's board of directors should lay down a policy on suitable margins, purpose of the loan and safeguards, RBI added.

Banks are allowed to issue long-term bonds with a minimum maturity of seven years to raise resources for lending for long-term projects in infrastructure and affordable housing. At present, a few banks have issued such bonds. The demand for credit is weak and interest rates are softening. Banks would not like to lock themselves in at a higher interest rate by issuing bonds now, said a public sector bank executive.

Disclaimer: This information has been collected through secondary research and IBEF is not responsible for any errors in the same.