The Reserve Bank of India on Monday allowed banks to invest in Infrastructure bonds issued by other banks.

However, the RBI said, "the primary objective of allowing regulatory exemptions on CRR and SLR requirements as well as priority sector lending is to encourage issue of long term bonds for lending to infrastructure projects and affordable housing."

Banks cannot hold their own bonds and banks' investment in such bonds will not be treated as assets with the banking system in India? for the purpose of calculation of total deposits, it said.

"Such investments are not to be held under HTM category," it said.

"An investing bank's investment in a specific issue of such bonds will be capped at 2 per cent of the investing bank's Tier 1 Capital or 5 per cent of the issue size, whichever is lower," it added.

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