With a view to expanding the bond market, the RBI on Thursday permitted banks to invest in debt instruments through mutual funds (MFs) or exchange traded funds without allocating additional charges.
As per RBI’s extant Basel III guidelines, if a bank holds a debt instrument directly, it would have to allocate lower capital as compared to holding the same debt instrument through a mutual fund (MF)/exchange traded fund (ETF).
“It has been decided to harmonise the differential treatment existing currently. This will result in substantial capital savings for banks and is expected to give a boost to the corporate bond market,” RBI Governor Shaktikanta Das said while announcing the monetary policy review.
