RBI changes norms on redemption funds, buyback of CPs

The fresh norms will apply on all persons or agencies dealing in CPs and NCDs of original or initial maturity up to one year

The Reserve Bank of India (RBI) on January 3 made changes in the norms related to redemption funds and buyback of commercial papers (CPs).

The central bank has issued directions on CPs and non-convertible debentures (NCDs) of original or initial maturity up to one year on January, which have been reviewed based on market feedback.

As per the directions, issuers of CPs can make buyback only after seven days from the date of issue.

Earlier, the buyback offer may not be made before 30 days from the date of issue, as per the Operational Guidelines for Commercial Paper issued by Fixed Income Money Market and Derivatives Association of India in 2020.

The current directions also said that The buyback offer shall be extended to all investors in a particular issue on identical terms and conditions. The investors shall have the option to accept or reject the buyback offer.

"Buyback of CPs and NCDs shall be at the prevailing market price," directions said.

The issuer of CPs and NCDs have to inform the details of the buyback to the IPA and Debenture Trustee, respectively, on the date of buyback, RBI said.

The payment for the buyback of the CP/NCD by the issuer shall be routed
through the IPA, directions added.

Similarly, the fresh directions state that the issuer shall make the funds for redemption available to the Issuing and Paying Agent (IPA) by 3:00 P.M. on the redemption date. Earlier, the timing was by 2:00 PM on maturity date, as per FIMMDA norms.

The repayment of a CP/NCD, including coupon payments, shall be routed through the IPA, directions said.

These directions would be applicable on all persons or agencies dealing in CPs and NCDs of original or initial maturity up to one year, the RBI said in a release.

The directions will come into force with effect from April 01, 2024, the central bank added.