RBI cracks down on debt sales by non-bank finance firms
Under the rules unveiled late on Thursday, the RBI set a minimum waiting period of six months between private debt placements by NBFCs.
June 28, 2013 / 19:21 IST
The Reserve Bank of India has imposed restrictions on debt sales by non-bank financial companies (NBFCs), cracking down on issuance by an industry that has less regulatory oversight than banks and relies heavily on capital markets to fund its business.
Under the rules unveiled late on Thursday, the RBI set a minimum waiting period of six months between private debt placements by NBFCs.Also Read: Macroeconomic risks to economy rising: RBINBFCs such as Shriram Transport Finance frequently raise funds by selling bonds to both institutional and retail investors at high yields, as they are not allowed to raise money through savings deposits. Its shares fell 1.6 percent on Friday, lagging the 2.8 percent gain in the main NSE index.The RBI also mandated that debt issues must be fully secured by underlying assets and said only up to 49 investors can buy into a private placement, aligning the sector to rules that apply to corporate issuers.The restrictions come after NBFC debt sales reached Rs 72500 crore in the financial year ended in March, or one-fifth of total private placement of Rs 350000 crore, according to data provider Prime Database.NBFCs tend to engage in activities such as consumer finance, housing loans and commercial vehicle finance. However, they often fund such long term assets with short-term funds such as one-year debt."The main risks from NBFCs are the rolling over of their funding and the asset liability mismatch," said Anindya Dasgupta, treasurer at Barclays.While NBFC issuers must wait for six months before announcing a new debt offer, NBFCs may raise debt in multiple tranches within the six-month period as long as the issuances are part of a single fundraising registration, an official with direct knowledge of the matter said, declining to be identified. Discover the latest Business News, Sensex, and Nifty updates. Obtain Personal Finance insights, tax queries, and expert opinions on Moneycontrol or download the Moneycontrol App to stay updated!
