NBFCs get breather on fund raising via NCDs

The central bank deferred the six-month gap clause and said the appropriate gap would be reviewed

The Reserve Bank of India (RBI) on Wednesday gave a breather to non-banking financial companies (NBFCs) on norms regarding raising funds through privately placed non-convertible debentures (NCDs).

Last week, RBI had said NBFCs and primary dealers (PDs) that raise money through privately placed NCDs should keep a gap of minimum six months between two private placements and the number of investors should not exceed 49.

The central bank in a clarification issued on Wednesday deferred the six-month gap clause and said the appropriate gap would be reviewed. It added the guidelines issued last week would not be applicable to PDs as they have obligations in government securities market.

However, it has left the cap on the maximum number of investors in private placement unchanged.  

NBFCs’ boards should approve a policy before September with regards to planning and periodicity of private placements of NCDs.

NBFCs welcomed the move. However, they said capping the number of investors would be a problem for the companies which raised money through retail resources.

“There are many companies that raise money through retail and they will be impacted including bigger NBFCs” said R Sridhar, chairman, Finance Industry Development Council (FIDC), a self regulatory body for asset financing companies. “Companies will have to look at alternative resources, so ultimately, the cost of funds will go up and it has to be passed to borrowers.”  

He also said when there were capital adequacy norms in place, there shouldn’t be any restrictions on raising resources.                 

“For large NBFCs, the removal of periodicity restriction is certainly a breather. Most of them do multiple issuances in the year,” said Prakash Agarwal, associate director, financial institutions, India Ratings and Research. “Capping the number of investors and putting a floor on minimum subscription amount can be an issue for some smaller non- deposit taking NBFCs and gold loan companies that have traditionally relied on raising funding through retail debentures.”  

In today’s clarification, RBI also said core investment companies could raise the money through NCDs for the group and parent companies. RBI in last week’s order had banned NBFCs to deploy the money raised by privately placed NCDs in the parent or group company of NBFC.