The Reserve Bank today asked banks to issue bonds to retail investors so as to deepen the corporate debt market.
"With a view to deepening the corporate bond market in India through enhanced retail participation, banks, while issuing subordinated debt for raising Tier II capital, are encouraged to consider the option of raising such funds through public issue to retail investors," RBI said in a notification.
However, it said that while doing so banks are advised to adhere to the prescribed conditions.
The central bank also emphasised that the investor is aware of the risk characteristics of regulatory capital instruments.
Banks usually raise Tier II capital by issuing subordinated debt to banks and large investors.
As per the prescribed format, the amount of subordinated debt to be raised may be decided by the board of the bank.
The bonds have a minimum maturity of 5 years. However if the bonds are issued in the last quarter of the year i.e. from January 1 to March 31, they should have a minimum tenure of 63 months.
The coupon rate of such bonds are decided by the board banks.