RBI Norms on Corporate Bonds -What does it mean for Private credit?

RBI Norms on Corporate Bonds -What does it mean for Private credit?

What?

Banks can now hold corporate bonds under the Held to Maturity (HTM) basket

No mark to market requirement, akin to government bonds 

Celling of up to 23% banks’ exposure to HTM bonds now removed

Sales from HTM capped at 5%, unless reclassified, which now requires RBI approval

Bottom Line?

Obviates the need for frequent adjustment of value of bonds, allowing barks to hold at cost
Likely to boost bank participation in corporate bonds, deepening the bond market. However, RBI approval for reclassification may pose a challenge for sale – often critical during rising interest rate environments

A big positive also for private credit players (especially FPI investors) who often struggled to exit. A new buyer class opens up

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