The Reserve Bank of India (RBI) has rejected a request from HDFC Bank to allow it to classify securities worth over ₹1 lakh crore issued by the erstwhile HDFC Ltd as infrastructure bonds, according to a report by Economic Times. The infra classification would have granted regulatory relaxations to the country’s largest private sector bank.
The stocks of HDFC Bank were trading in green at ₹1444.35, up 0.93 per cent on March 21, at 9:54 am on BSE. The bank’s stocks are around 17 per cent, down from its 52-week high of ₹1,757.80. The bank enjoys a market capitalisation of ₹10,97,142.48 crore.
Livemint could not independently verify this news.
The central bank communicated to HDFC Bank that there exists a technical obstacle in granting the infrastructure tag to bonds issued by the former HDFC Ltd., as those were issued by a non-banking finance company (NBFC), and norms for treatment of bonds differ for banks and NBFCs, the report added.
HDFC Ltd had issued the bonds in question before its merger with HDFC Bank, which took effect in July 2023. Last year, HDFC Bank sought the RBI’s approval to classify debt instruments with maturities ranging from seven to ten years as infrastructure bonds.
The erstwhile housing finance company had around ₹1.2 lakh crore worth of bonds classified as infrastructure finance instruments. As per the report, an infrastructure tag would have provided relief to HDFC Bank on cash reserve ratio (CRR) and statutory liquidity ratio (SLR) requirements against such debt.
What is CRR?
CRR is a percentage of deposits banks are mandated to maintain with the RBI in cash. By classifying certain bonds as infrastructure bonds, HDFC Bank would have enjoyed relaxation on the CRR, meaning it could hold a lesser portion of its deposits as reserves with the RBI, thus freeing up more funds for lending or investment.
As per the RBI’s regulations, funds raised by banks through long-term bonds for investment in infrastructure and affordable housing are exempt from SLR and CRR mandates. Currently, SLR, which refers to the portion of deposits banks must invest in liquid assets like government bonds, stands at 18 per cent, while CRR is at 4.5 per cent of deposits.
The central bank has distinct norms for the treatment of bonds issued by NBFCs versus those issued by banks. While insurers have been granted some leeway for a portion of their investments in HDFC Ltd bonds, banks and other investors will have to treat them differently.
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