The RBI recently announced measures to reduce costs for “affordable” housing and infrastructure. They will require banks to issue 7 years bonds, and that money should be used to lend to infra or affordable housing. The bonds, being liabilities, would normally attract SLR and CRR – that is, 22.5% of the amount would have to be placed in government bonds and another 4%, placed interest free with the RBI.

The special notification requires no such placement – that is, there is freedom of CRR and SLR for such bonds. But the amount for which the exemption is given is not the amount raised via the bonds. It’s the amount actually lent to infra+affordable housing. And of their current lending, they get a benefit of only 16% of whatever they’ve lent to these sectors, from SLR/CRR for 2014-15 (though more will qualify next year and so on)

Let’s take a deeper look at the impact of this change.

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