What changed
Earlier, banks were barred from investing in unrated non-SLR securities. This circular carves out an exception: unrated bonds issued by companies engaged in infrastructure activities are now allowed, provided they fall within the 10% limit on total investment in unlisted non-SLR securities as of March 31 of the previous year.
What it means for you
Banks can now tap into unrated infrastructure bonds to support long-term projects, but the overall unlisted non-SLR exposure remains capped. This gives lenders more flexibility to finance infrastructure without breaching prudential norms. However, credit risk assessment becomes critical since these bonds are unrated.
What you must do
- Review your current unlisted non-SLR investment portfolio to ensure headroom under the 10% ceiling.
- Update internal investment policies to explicitly allow unrated infrastructure bonds within the cap.
- Strengthen due diligence for unrated infrastructure bonds, focusing on project viability and issuer creditworthiness.
- Monitor compliance with the March 31 reference date for calculating the 10% limit.
Who it affects
All scheduled commercial banks (excluding Local Area Banks and Regional Rural Banks), Infrastructure companies seeking bond financing, Bank treasury and credit risk teams
Does this circular remove the ban on unrated non-SLR securities entirely?
No. The ban on unrated non-SLR securities remains, except for bonds of companies engaged in infrastructure activities. Those are now permitted, but only within the existing 10% ceiling for unlisted non-SLR securities.
How is the 10% limit calculated for unlisted non-SLR securities?
The limit is 10% of the bank's total investment in non-SLR securities as on March 31 of the previous financial year. Unrated infrastructure bonds count toward this ceiling.
Are there any additional reporting or approval requirements for these investments?
The circular does not specify new reporting or approval steps beyond existing norms. However, banks must ensure compliance with the overall prudential framework for investment portfolio classification and valuation.