The Reserve Bank of India (RBI) on Friday has allowed banks to provide partial credit enhancement (PCE) to bonds issued by the non-banking financial companies (NBFCs) and Housing Finance Companies (HFCs), subject to certain riders.

The tenor of the bonds issued by NBFCs and HFCs for which PCEs are provided shall not be less than three years, the central bank said.

"The proceeds from the bonds backed by PCE from banks shall only be utilised for refinancing the existing debt of the NBFCs and HFCs," RBI said in a notification.

Further the RBI said, "The exposure of a bank by way of PCEs to bonds issued by each such NBFCs and HFCs shall be restricted to one percent of capital funds of the bank within the extant single/group borrower exposure limits and the exposure of banks to NBFCs and HFCs by way of PCEs shall be within the aggregate PCE exposure limit of 20 percent."

First Published:Nov 2, 2018 6:33 PM IST