India central bank allows credit enhancement by foreigners

March 2, 2010

MUMBAI, March 2 (Reuters) – India’s central bank on Tuesday allowed foreign entities to provide credit enhancement to local bonds issued by firms and lenders linked to infrastructure projects.

In a circular, the Reserve Bank of India (RBI) said credit enhancement to help raise the credit profile of a debt issuance should be provided by multilateral and state-owned financial institutions.

The debt instrument should have a minimum average maturity of seven years and prepayment and call or put options would not be allowed on such bonds for such time period.

The guarantee fee and credit enhancement costs would be up to 2 percent of the principal amount.

If there is a default and the loan is serviced in Indian rupees, the applicable rate would be the higher of the coupon on the bonds or 250 basis points above the secondary market yield of five-year federal bond, the central bank said. (Reporting by Anurag Joshi) ((; Tel: +91 22 6636 9038; Reuters Messaging: ((If you have a query or comment on this story, send an email to

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