Easing loan norms for low-cost housing, Reserve Bank of India (RBI) 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. Banks can give loans up to Rs 10 lakh per borrower and the tenure of loans would depend upon the maturity period of bonds.
However, banks could lend against these bonds only if it were issued by them. RBI has strictly barred banks for lending against bonds issued by other banks. Meanwhile, banks can issue long-term bonds with a minimum maturity of seven years to raise resources for lending to long-term projects in infrastructure and affordable housing.
In July, following a budget announcement by the finance minister, RBI had allowed banks to raise funds by selling long-term bonds that are exempt from the central bank’s reserve requirements and priority sector lending targets. As per RBI’s regulations, banks have to set aside 4% of their deposits as cash reserve ratio (CRR) and mandatorily invest 22% of their funds in government bonds. They also have to compulsorily lend 40% of their funds to priority segment, which includes small businesses, agriculture and weaker sections of the society.