Banks should also have an overall exposure limit to the infra sector on account of their direct exposures by way of fund-based and non-fund based exposures to companies including NBFCs-IFCs, and indirect exposures by way of sponsoring IDFs and partial credit enhancements.

“Partial credit enhancement provided by banks shall be limited to the extent of improving the credit rating of bonds (assigned by a recognised external credit rating agency) by a maximum of two notches,” RBI said.

As a credit enhancement, a bank can either provide a funded subordinated loan or a non-funded contingent line of credit, but not both.

The effect of the credit enhancement on the bond rating must be disclosed in the bond offer document - the rating of the bond without and with the credit enhancement should be disclosed, the draft guidelines said.  Partial credit enhancement facility may be extended to enable the corporates to access funds from the corporate bond market and not for availing finance from other banks or financial institutions.

The RBI, however, said banks should neither invest in the bonds for which they have provided partial credit enhancement, nor should they provide any other credit facility to the specific project or SPV.

It said the arrangement of banks providing partial credit enhancement to corporate bonds will be reviewed after a period of two years.