Indian banks will gravitate towards corporate bonds they intend to hold until maturity once new central bank rules kick in next month, as yields are currently elevated and the investments would be spared from market-linked markdowns, treasury officials said.
From April 1, corporate bond investments will be allowed under held-to-maturity (HTM) category for the first time, provided the fair value is disclosed and investments protected from mark-to-market volatility, according to revised Reserve Bank of India rules.
Currently banks can hold up to 23% of their deposits under HTM as investments in government bonds and state debt and this cap will be removed in April.
The current yield spread of more than 50 basis points in favour of corporate bonds makes them an attractive investment.
“From April, for the HTM portfolios, the AAA-rated bonds especially of state-run companies are an attractive bet as they are yielding higher than the state…
