RBI puts on hold private debt placement rules for NBFCs

RBI puts on hold private debt placement rules for NBFCs

The Reserve Bank of India said on Wednesday it would hold off implementing a notification issued last week that mandated a minimum wait of six months between two private placements from a non-bank financial firm.

Instead, the RBI said a decision on "the appropriate minimum time gap" would be taken by the central bank "in due course," after the industry raised some concerns about the measures.

The clarification could allay the concerns of non-banking financial firms (NBFC), which rely heavily on capital markets to fund their businesses but have attracted less regulatory oversight than banks.

The RBI said NBFCs would be further given time until the end of September to put in place clear plans for raising funds.

"This notification has come as a relief for NBFCs as they have been given a time period of 3 months to chalk out a resource-raising strategy and make representations to RBI if needed," said B. Prasanna, chief executive at ICICI Securities Primary Dealership.

The guidelines RBI issued last week had raised concerns about their impact on the NBFC sector, whose debt sales reached 725 billion rupees in the financial year ended March, one-fifth of the total private placement of 3.5 trillion rupees, according to data provider Prime Database.

The central bank added that its previous notification would not be applicable for primary dealers, while defining private placements as "non-public" issuances of non-convertible debt by NBFCs, clearing doubts if last week's provisions would have applied to convertible bonds.

In another key clarification, the RBI said the earlier provisions would not apply to core investment companies, or special investment vehicles that are created by some NBFC groups to raise funds on behalf of the group.

However, the RBI kept other provisions such as the mandate that debt issues must be fully secured by underlying assets, and that only up to 49 investors can buy into a private placement.

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