Banks have been allowed to tap the bond market, which gives them the flexibility to raise long-term funds at the current low rates
Infrastructure financing by commercial banks has got a booster shot as the Reserve Bank of India (RBI) has acceded to their petition for raising long-term resources from the market.
This will also enable banks to realign their portfolios from the asset-liability management angle, and to honour their long-term commitments. The long-term resources that banks can raise will not be in the nature of subordinated debt.
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This measure by the RBI comes in the backdrop of ICICI Bank, post-reverse merger of ICICI with it, being allowed to raise funds through safety bonds.
Almost all the banks have asset liability imbalances in the over three to five years and over five-year maturity brackets.
At present, banks are permitted to issue long-term subordinated debt in the nature of unsecured redeemable bonds which qualify for inclusion in Tier II capital.