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Moody’s said the new regulations for issuing long-term local currency bonds are credit-positive for banks in India, as the money so raised will help to reduce their costs.
Under the new norms, long-term bonds (tenor of more than seven years) will be exempt from RBI’s cash and statutory reserve requirements if the proceeds are used to fund new long-term infrastructure projects and affordable housing. Also, loans funded by this mechanism are exempt from the computation of adjusted net bank credit for the purpose of calculating priority sector lending requirements.
Under the new norms, long-term bonds (tenor of more than seven years) will be exempt from RBI’s cash and statutory reserve requirements if the proceeds are used to fund new long-term infrastructure projects and affordable housing. Also, loans funded by this mechanism are exempt from the computation of adjusted net bank credit for the purpose of calculating priority sector lending requirements.
The banks with the largest exposure to infrastructure and mortgage loans are ICICI, Axis and State Bank of India. They would be the first beneficiaries of these norms, said Moody's.
The new regulations are also expected to foster an improvement of banks' competitive positioning vis-à-vis housing finance and infrastructure finance companies. Moody's said banks' lower cost of funding allows them to be much more competitive on pricing. This is especially relevant for basic mortgages, where price competition is already intense, forcing housing finance companies to operate with thin margins.
On the market appetite for such bonds, Moody's said the extent to which banks issue bonds under the new regulations will depend on the availability of a sufficiently large investor base.
Banks had infrastructure and housing loans due of Rs 11,40,000 crore as of end-March. The total of outstanding corporate bonds was Rs 14,67,000 crore for the same period.
