The Reserve Bank of India (RBI) has proposed to allow banks to offer partial credit enhancements to corporate bonds by way of providing credit facilities and liquidity facilities to the corporates.
RBI said the corporate bond market in India lacks liquidity and have significant dependence on bank financing. RBI says it does not want banks to give credit enhancement to corporates by way of guarantee.
According to reports, the finance ministry wants PSBs to follow stricter norms while issuing letters of credit to borrowers, concerned that such type of funding results in double financing, which often leads to financial indiscipline among borrowers.
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