"The banks can issue long-term bonds with a minimum maturity of seven years to raise resources for lending to (i) long term projects in infrastructure sub-sectors, and (ii) affordable housing," the Reserve Bank said.

The RBI said that apart from what is technically defined as infrastructure, affordable housing is another segment of the economy which requires long term funding.

The Central Bank said it intends to "ease the way for banks to raise long term resources to finance their long term loans to infrastructure as well as affordable housing".

The instructions are in pursuance of Finance Minister Arun Jaitley's Budget speech in which he had said "banks will be encouraged to extend long term loans to infrastructure sector with flexible structuring to absorb potential adverse contingencies, 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, say 25 years, with periodic refinancing, say every 5 years.

The RBI issued instructions to banks specifying operational guidelines and incentives in the form of flexibility in loan structuring and refinancing.

It granted exemptions from regulatory preemptions, such as, cash reserves ratio (CRR), statutory reserves ratio (SLR) and Priority Sector Lending (PSL).

As per RBI regulations, banks are required to keep a portion of deposits as Cash Reserve Ratio (CRR) with the central bank and park certain portion in government securities known as Statutory Liquidity Ratio (SLR).

"The objective of these instructions is to mitigate the Asset-Liability Management (ALM) problems faced by banks in extending project loans to infrastructure and core industries sectors, and also to ease the raising of long term resources for project loans to infrastructure and affordable housing sectors" it said.

HIGHLIGHTS
Long term bonds are exempted from mandatory regulatory norms like CRR and SLR if the money raised is used for funding of infrastructure development and affordable housing projects.

Lending for affordable housing means loans eligible under priority sector

Affordable housing loans up to Rs 50 lakh to individuals for houses costing up to Rs 65 lakh located in the six metropolitan centres-- Mumbai, New Delhi, Chennai, Kolkata, Bengaluru and Hyderabad.

For other areas, affordable housing covers loans of Rs 40 lakh for houses with values up to Rs 50 lakh.

RBI aims to ease the way for banks to raise long term resources to finance their long term loans to infrastructure as well as affordable housing.
   
RBI’s instructions are in pursuance of Finance Minister Arun Jaitley's Budget speech.

The banks have been seeking permission for longer tenor amortisation of the loan, say 25 years with periodic refinancing of balance debt, RBI said.

It further said rupee denominated bonds should be issued in "plain vanilla form" without call or put option with a fixed or floating rate of interest.

Lending for affordable housing means loans eligible under priority sector, and loans up to Rs 50 lakhs to individuals for houses costing up to Rs 65 lakhs located in the six metropolitan centres. For other areas, it covers loans of Rs 40 lakhs for houses with values up to Rs 50 lakhs.

The Reserve Bank said that while banks have been raising resources in a significant way, issuance of long term bonds for funding loans to infrastructure sector has not picked up at all.

Infrastructure and core industries projects are characterised by long gestation periods and large capital investments. The long maturities of such project loans consist of the initial construction period and the economic life of the asset underlying concession period (usually 25-30 years).

India is looking at investing USD 1 trillion in infrastructure development by 2017, half of which is expected to come from the private sector.

Realtors hail RBI move to ease norms for affordable housing

Realtors' body CREDAI hailed the RBI's move to ease norms for banks to raise long term funds for financing affordable housing, saying this will lead to cheaper credit for such projects.
     
"It is a welcome step. This will lead to lower interest rates for affordable housing projects," CREDAI Chairman Lalit Jain said.
    
Another realtors' body NAREDCO Chairman Navin Rajeja said this will help developers to mobilise cheaper finance for development of affordable housing and will result into cutting in prices of housing in long term.
    
"It is expected that the home loan rates may also come down because of this move," Raheja said.
    
Jain of Credai demanded that the housing sector should be given infrastructure status and felt that Pune, Ahmedabad and Lucknow should have figured in the list of metropolitan cities.

The latest moves by the RBI finally addresses a huge concern of the real estate sector for which it has been demanding infrastructure or industry status since a long time, Cushman and Wakefield said.

Clubbing affordable housing with infrastructure and allowing priority sector lending will allow the sector to finally access cheaper funding, it said.

Real estate developers have been battling increasing costs due to increasing land costs, high inflation in raw materials since the last 2-3 years and restricted access to bank finance since the global financial crisis of 2008.

Consequently, overall costs have increased by more than 40 percent, which has also made it more expensive for home buyers, it added.

Property developers gain on infra bond norms

Shares in property developers gain after the RBI unexpectedly extended the exemption on reserve requirements to bonds raised by banks, intended for affordable housing as part of the country's measures to boost the infrastructure sector.

"This will help developers as the cost of capital will become cheaper," said an analyst with a local brokerage.

DLF Ltd is up 1.85 percent, Unitech Ltd gains 7.2 percent and Sobha Developers Ltd adds 2.2 percent.

JPN/Agencies

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