RBI/2018-19/70
DBR.BP.BC.No.7/21.04.142/2018-19
November
2, 2018
All Scheduled Commercial Banks
(excluding RRBs)
Dear Sir/Madam,
Partial
Credit Enhancement to Bonds Issued by Non-Banking Financial
Companies and Housing Finance Companies
Please refer to circular DBR.BP.BC.No.40/21.04.142/2015-16 dated
September 24, 2015 on Partial Credit Enhancement to Corporate
Bonds and other associated circulars issued subsequently on the subject.
2. It has now been decided to
allow banks to provide partial credit enhancement (PCE) to bonds issued by
the systemically important non-deposit taking non-banking financial
companies (NBFC-ND-SIs) registered with the Reserve Bank of India and
Housing Finance Companies (HFCs) registered with National Housing Bank,
subject to the following conditions:
i) The tenor of the bonds issued
by NBFC-ND-SIs/HFCs for which PCEs are provided shall not be less than
three years;
ii) With reference to paragraph
27 of circular ibid, the proceeds from the bonds backed by PCE from banks
shall only be utilized for refinancing the existing debt of the
NBFC-ND-SIs/HFCs. Banks shall introduce appropriate mechanisms to monitor
and ensure that the end-use condition is met;
iii) The exposure of a bank by
way of PCEs to bonds issued by each such NBFC-ND-SI/HFC shall be restricted
to one percent of capital funds of the bank within the extant single/group
borrower exposure limits; and
iv) The exposure of banks to
NBFC-ND-SIs/HFCs by way of PCEs shall be within the aggregate PCE exposure
limit of 20 percent as provided in paragraph 24(b) of the circular ibid.
3. All other conditions
stipulated in the above mentioned circular as well as circulars DBR.BP.BC.No.5/21.04.142/2016-17 dated August
25, 2016 and DBR.No.BP.BC.70/21.04.142/2016-17
dated May 18, 2017 on Partial Credit Enhancement to Corporate
Bonds shall apply mutatis mutandis to PCEs to bonds issued by
NBFC-ND-SIs/HFCs.
Yours faithfully,
(Saurav Sinha)
Chief General Manager-in-Charge
|