2. In terms of paragraph 13 of circular dated July 15, 2014, presently banks are not permitted to cross-hold such bonds among themselves. It has been represented to us that such prohibition on cross-holding inhibits the liquidity and tradability of these bonds, as banks are the major participants in the debt market.
3. On a review, it has been decided that henceforth, banks can invest in the long term bonds issued by other banks under the provisions of the above-mentioned circular dated July 15, 2014. However, the primary objective of allowing regulatory exemptions on CRR and SLR requirements as well as priority sector lending is to encourage issue of long term bonds for lending to infrastructure projects and affordable housing. To preserve this objective and in order to prevent double counting of regulatory exemptions allowed, such investments will be subject to conditions as follows:
Banks’ investment in such bonds will not be treated as ‘assets with the banking system in India’ for the purpose of calculation of NDTL.
Such investments are not to be held under HTM category.
An investing bank’s investment in a specific issue of such bonds will be capped at 2% of the investing bank’s Tier 1 Capital or 5% of the issue size, whichever is lower.
An investing bank’s aggregate holding in such bonds will be capped at 10% of its total Non-SLR investments.
Not more than 20% of the primary issue size of such bond issuance can be allotted to banks.