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Business News/ Money / Personal Finance/  Retail investors’ investment in NCDs, commercial papers limited to 25% of issue: RBI
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Retail investors’ investment in NCDs, commercial papers limited to 25% of issue: RBI

The Reserve Bank of India (RBI) has limited retail investors' investment in primary issuances of non-convertible debentures and commercial papers to a quarter of the total issuance to minimise investors' losses in case of default on short-term financial instruments.

The latest directions have been issued via RBI’s master direction issued on January 3, 2024.Premium
The latest directions have been issued via RBI’s master direction issued on January 3, 2024.

The Reserve Bank of India (RBI) has limited retail investors’ investment in primary issuances of non-convertible debentures and commercial papers to a quarter of the total issuance to minimise investors’ losses in case of default on short­-term financial instruments. 

The latest directions have been issued by RBI’s master direction issued on January 3, 2024.

Additionally, issuers of commercial papers (CPs) and non convertible debentures (NCDs) have to disclose information on any default in payments through various channels, including publicly disseminating such information through their website, per RBI’s revised master direction.

Limiting the total subscription by all individuals, including Hindu Undivided Families (HUFs) in any primary issuance of CPs or NCDs to one-quarter of the total amount issued, could stop their tendency to go overboard.

So far, there was not any such limit for individual investors’ investment, market experts argue. CPs and NCDs are issued in minimum denomination of 5 lakh and in multiples of 5 lakh thereafter.

“While institutional investors and high networth individuals are conversant with the dynamics of the debt market, individual investors are not. So, the RBI’s measure to cap individual investors, including HUFs, investment in short term debt instruments is aimed at protecting them," said Ashish Agrawal, Director, Resurgent India Ltd, reported Business Line

The banking regulator has also expanded the category of CP and NCD issuers to include Infrastructure Investment Trusts (InvITs) and Real Estate Investment Trusts (REITs). In addition, co-operative societies and limited liability partnerships with a minimum net worth of 100 crore too can issue CPs.

Referring to one of the clauses in the direction that requires defaulting issuers to publicly disseminate information on default through their website, Agrawal said it remains to be seen if such issuers will adhere to this prescription in letter and spirit. 

He opined that a penalty for non­-adherence to the aforementioned clause can ensure that defaulting issuers will fall in line.

 

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Published: 05 Jan 2024, 04:31 PM IST
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