RBI proposes strengthen regulations in Commercial Papers market
MUMBAI: The Reserve Bank of India has proposed to enhance disclosure norms for issuers of Commercial Papers, which include details of any past default on bank loans, even if it is technical, and make public all outstanding credit facilities with banks.
“Details of default including technical default, if any, along with description of the issue, IPA, amount, dates of issue and maturity date for past three years,” is one of the additional disclosures as proposed by the central bank in its draft directions.
“All outstanding credit facilities from banks, facility-wise, and their asset classification,” is another new condition.
RBI has laid down a minimum of six disclosures in the offer document when a company plans to raise money selling commercial papers where maturities vary in the range of seven days to one-year. Companies normally meet their working capital requirement through this route.
“Investors will be able to take informed decisions based on greater disclosures by issuers as mentioned in the RBI draft guidelines,” said NS Venkatesh, ED, Lakshmi Vilas Bank.
The total stock of commercial papers, a fixed income instrument with a tenor between 7 days to a year, is at Rs 4.06 lakh crore as on January 15, 2017, up from Rs 2.6 lakh crore on March 31, 2016, amounting to a rise of Rs 1.46 lakh crore so far this fiscal year. This is slightly lower than the overall bank credit growth of Rs 1.54 lakh crore in the same period.
Moreover, a payment settlement mostly takes place within the day a CP trade happens. But, RBI now proposes to make it T+1 meaning settlement only a day after the trade.
“New issuers are coming in to raise resource via CPs,” said Ajay Manglunia, executive VP (fixed income) at Edelweiss. “New draft guidelines are aimed at strengthening the current practice and process of issuing CPS. The market will attain more maturity once these are finalised.”
“End use of funds should be more regulated now,” he said.
RBI plans to mandate issuers to take at least two ratings from rating companies. Normally, an issuing company takes one such rating now before it sells CP.
"To broaden access, strengthen disclosure requirements by issuers of CPs, review the role of issuing and paying agents (IPAs) and put in place an information dissemination mechanism, the existing directions on CPs have been reviewed," RBI said seeking external comments on the draft guidelines.
“Details of default including technical default, if any, along with description of the issue, IPA, amount, dates of issue and maturity date for past three years,” is one of the additional disclosures as proposed by the central bank in its draft directions.
“All outstanding credit facilities from banks, facility-wise, and their asset classification,” is another new condition.
RBI has laid down a minimum of six disclosures in the offer document when a company plans to raise money selling commercial papers where maturities vary in the range of seven days to one-year. Companies normally meet their working capital requirement through this route.
“Investors will be able to take informed decisions based on greater disclosures by issuers as mentioned in the RBI draft guidelines,” said NS Venkatesh, ED, Lakshmi Vilas Bank.
The total stock of commercial papers, a fixed income instrument with a tenor between 7 days to a year, is at Rs 4.06 lakh crore as on January 15, 2017, up from Rs 2.6 lakh crore on March 31, 2016, amounting to a rise of Rs 1.46 lakh crore so far this fiscal year. This is slightly lower than the overall bank credit growth of Rs 1.54 lakh crore in the same period.
Moreover, a payment settlement mostly takes place within the day a CP trade happens. But, RBI now proposes to make it T+1 meaning settlement only a day after the trade.
“New issuers are coming in to raise resource via CPs,” said Ajay Manglunia, executive VP (fixed income) at Edelweiss. “New draft guidelines are aimed at strengthening the current practice and process of issuing CPS. The market will attain more maturity once these are finalised.”
“End use of funds should be more regulated now,” he said.
RBI plans to mandate issuers to take at least two ratings from rating companies. Normally, an issuing company takes one such rating now before it sells CP.
"To broaden access, strengthen disclosure requirements by issuers of CPs, review the role of issuing and paying agents (IPAs) and put in place an information dissemination mechanism, the existing directions on CPs have been reviewed," RBI said seeking external comments on the draft guidelines.
