RBI takes steps to improve credit rating of infrastructure company bonds

Photo by Ramnath Bhat licensed under CC BY-SA 2.0

Photo by Ramnath Bhat licensed under CC BY-SA 2.0

The RBI recently issued a circular that allows infrastructure companies to issue bonds (debt instruments) supported by credit enhancement through an irrevocable contingent line of credit provided by commercial banks up to a limit of 20% of the bond issue size.  Such partial credit enhancement will enable the bonds to get higher credit ratings, which should attract investments from insurance and provident/pension funds, which are otherwise unable to invest in such bonds because of the low credit ratings. The circular promotes an alternative source of finance for infrastructure companies, which are heavily dependent on banks for their financing requirements. 

Vidhi advised the RBI on certain key aspects of this circular.