 "HDFC, HDFC Bank")
The Reserve Bank of India (RBI) has reportedly rejected a proposal from HDFC Bank to designate securities worth over Rs 1 trillion issued by the former HDFC Ltd as infrastructure bonds, according to a report by The Economic Times (ET). If approved, this decision would have provided regulatory flexibility to India's largest private bank.
The RBI reasoned that there were technical constraints in granting infrastructure status to bonds issued by the former HDFC Ltd, as they were issued by a non-banking finance company (NBFC), and the norms for bond treatment differ between banks and NBFCs, ET stated.
These bonds were issued prior to HDFC Ltd's merger with HDFC Bank in July 2023. Last year, the bank sought RBI's approval to classify bonds with maturities between 7-10 years, worth around Rs 1.2 trillion, as infrastructure bonds.
As per RBI regulations, funds raised by banks through long-term bonds for investment in infrastructure and affordable housing are exempt from statutory liquidity ratio (SLR) and cash reserve ratio (CRR) obligations. Currently, SLR stands at 18 per cent while CRR is at 4.5 per cent of deposits. Classifying HDFC Bank's maturities as infra bonds would have relieved the bank of these requirements.
ET added that RBI also has specific guidelines for secured bonds issued by NBFC and banks that are unsecured. While insurance companies are allowed a certain degree of flexibility in their bond investments under HDFC Ltd, banks and other institutional investors are subject to different rules.
In August 2023, the Insurance and Development Authority of India (Irdai) announced that HDFC Ltd bonds held by insurance companies as of April 4, 2022, could be classified as "housing and infrastructure" debt until maturity.
Irdai's decision was significant for insurers in managing their permitted investment limits, as post-merger exposure to HDFC Ltd bonds would be considered BFSI exposure to HDFC Bank.
