**Summary:**
This policy, issued by the Reserve Bank of India (RBI) on November 2, 2018, under circular number RBI/2018-19/70 DBR.BP.BC.No.721/04.04.142/2018-19, permits scheduled commercial banks (excluding Regional Rural Banks) to provide Partial Credit Enhancement (PCE) to bonds issued by systemically important non-deposit taking Non-Banking Financial Companies (NBFC-ND-SIs) registered with the RBI and Housing Finance Companies (HFCs) registered with the National Housing Bank (NHB). This is further to circular DBR.BP.BC.No.40/21.04.142/2015-16 dated September 24, 2015, on Partial Credit Enhancement to Corporate Bonds.
Key conditions for providing PCE are as follows:
1. The tenor of the bonds issued by NBFC-ND-SIs/HFCs must be a minimum of three years.
2. The proceeds from bonds backed by PCE must be utilized exclusively for refinancing existing debt of the NBFC-ND-SIs/HFCs. Banks are required to implement monitoring mechanisms to ensure compliance with this end-use requirement.
3. A bank's exposure through PCEs to bonds issued by each NBFC-ND-SI/HFC is capped at one percent of the bank's capital funds, subject to extant single-group borrower exposure limits.
4. A bank's aggregate PCE exposure to NBFC-ND-SIs/HFCs must remain within the overall PCE exposure limit of 20 percent as stipulated in paragraph 24(b) of the aforementioned circular.
All other conditions outlined in circular DBR.BP.BC.No.40/21.04.142/2015-16, as well as circulars DBR.BP.BC.No.52/21.04.142/2016-17 dated August 25, 2016, and DBR.No.BP.BC.70/21.04.142/2016-17 dated May 18, 2017, regarding Partial Credit Enhancement to Corporate Bonds, will apply *mutatis mutandis* to PCEs for bonds issued by NBFC-ND-SIs/HFCs.
Saurav Sinha, Chief General Manager-in-Charge, is the contact person for this policy.
Key Entities Referenced
Reserve Bank of India: The central bank of India, responsible for regulating the banking sector.
All Scheduled Commercial Banks: All commercial banks in India that are listed in the Second Schedule to the Reserve Bank of India Act, 1934, excluding Regional Rural Banks (RRBs).
Non-Banking Financial Companies: Financial institutions that provide banking services without meeting the legal definition of a bank. Specifically, systemically important nondeposit taking nonbanking financial companies (NBFCNDSIs).
Housing Finance Companies: Companies that primarily engage in providing finance for housing.
National Housing Bank: The apex regulatory body for housing finance companies in India.
Partial Credit Enhancement: A mechanism to improve the credit rating of bonds, in this case, bonds issued by Non-Banking Financial Companies and Housing Finance Companies.
DBR.BP.BC.No.40/21.04.142/2015-16: A circular issued by the Reserve Bank of India on September 24, 2015, regarding Partial Credit Enhancement to Corporate Bonds.
Saurav Sinha: Chief General Manager-in-Charge at the Reserve Bank of India.
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; andiv) 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