RBI directs issuers to specify use of funds raised through NCDs and CPs
The Reserve Bank of India has amended the norms for issuance of commercial paper and non-convertible debentures with a maturity of up to one year to regulate short-term investments and ensure transparency in the market. One of the most significant changes was that the guidelines require issuers to clearly state the exact end use of funds raised through these instruments, with the exception of financing current assets and operating expenses.
For better transparency, issuers are now required to disclose long-term and non-endorsed credit ratings in the offering memorandum. This information helps investors make informed decisions about the risks associated with the investment, market participants said.
“The aim is to bring more discipline among issuers,” said Ajay Manglunia, Managing Director and Head (Institutional Fixed Income), JM Financial. “Now there are timelines and discipline around utilization that really weren't there. They will have to be more sensible about why they are raising the fund,” he added.
The settlement period was limited to T+4. This means that the transactions must be settled within four days of the transaction date. Individuals and Hindu Undivided Families (HUF) were allowed to invest a maximum of 25 percent of their total income. The guidelines require that redemptions (repayment of the amount invested) must be made before 3:00 PM on the due date.
“CP issuances are increasing so they are a bit cautious, apart from that there should not be any major impact,” said Venkatakrishnan Srinivasan, Founder and Managing Partner of Rockfort Fincap LLP.
Corporates and financial institutions raised Rs 1.1 trillion through CPs in December, up from Rs 1 trillion in November. In December, non-banking finance companies raised a total of Rs 69,380 crore, up 26 percent from the previous month. Meanwhile, manufacturing companies witnessed a 14 percent decline in issuances, amounting to Rs 33,690 crore during the same period. Housing finance companies were responsible for the remaining Rs 8,200 crore mobilized during the period.
First print: January 4, 2024 | 7:01 PM IST