The Reserve Bank of India has allowed banks to invest in infrastructure bonds (long term) of other banks. This will give a boost to the infrastructure development. Currently banks are not allowed to cross-hold long-term bonds issued specifically for the purpose of financing of infrastructure and affordable housing loans among themselves.

The RBI has emphasized that the primary objective of allowing regulatory exemptions on CRR and SLR requirements as well as priority sector lending is to encourage issue of long term bonds for lending to infrastructure projects and affordable housing.

An investing bank’s investment in a specific issue of such bonds will be capped at 2 per cent of its Tier-1 Capital or 5 per cent of the issue size, whichever is lower. The RBI specified that no more than 20 percent ‎of infrastructure bond issues could be earmarked for banks, while the rest must be spread across other diverse investor groups. Further, an investing bank’s aggregate holding in such bonds will be capped at 10 per cent of its total non-SLR investments. Also, banks cannot hold their own bonds.