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RBI eased the infrastructure financing norms to encourage infrastructure development

Jul 17, 2014 18:35 IST

Reserve Bank of India (RBI) on 15 July 2014 announced to ease the infrastructure financing norms in order to encourage infrastructure development and affordable housing.

The RBI exempted long-term bonds from mandatory regulatory norms of Cash Reserve Ratio (CRR), Priority Sector Lending (PSL) and Statutory Liquidity Ratio (SLR) if the money raised is used for funding of infrastructure projects.

Further, it asked the Banks to issue long-term bonds with a minimum maturity of seven years to raise resources for lending to long-term projects in infrastructure sub-sectors and affordable housing.

The objective of easing infra norms is to mitigate the Asset-Liability Management (ALM) problems faced by banks in extending project loans to infrastructure and core industries sectors. Further it would also ease the raising of long term resources for project loans to infrastructure and affordable housing sectors.

The easing of infrastructure norms are in pursuance of Union Finance Minister Arun Jaitley’s budget speech in which he sought banks to extend long-term loans to infrastructure sector with flexible structuring to absorb potential adverse contingencies. This process of extending loans is sometimes known as the 5:25 structure.

Under the 5:25 structure, bank may fix longer amortisation period for loans to projects in infrastructure and core industries sectors with periodic refinancing, say every five years.

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