RBI to allow banks to offer corp bonds as repo collateral

MUMBAI: The Reserve Bank of India has decided to allow banks to raise capital through masala bonds in the overseas market and also seek legal changes that will allow them to borrow by pledging corporate bonds.

The RBI also increased the total exposure limit to 50% of the bond issue size, limiting it to 20% per bank, thus signalling moves that will deepen the bond market in India and pitch it as an alternate source to raise capital.

A corporate bond is a long term financial instrument, typically for 2-5 year tenure, issued by a company to raise funds.

Borrowers with aggregate credit limits of over ₹10,000 crore are considered large borrowers and will have normal permissible lending limit of 50% of the credit limits in a year.

“Higher risk weights and standard asset provisioning is applicable only if a borrower raises more than 50% of the credit limit set in the previous year. This is mainly to check excess leverage or borrowings by corporate,” said Vikesh Mehta of Religare Institutional Research.