Merchant Banking, Nbfc Activity To Be Bifurcated

The Securities and Exchange Board of India yesterday announced that it would soon order the creation of firewalls between merchant bankers and other non-banking finance companies which undertake hire purchase, leasing and deposit-raising activities.

Existing NBFCs which have merchant banking operations will have to hive it off into a separate entity.

The capital market regulator, which held its board meeting here yesterday, said it would also abolish the various categories among merchant bankers. The entities which have a registration will be permitted to continue operations as long as their licences are valid.

At present, merchant bankers are divided into four categories. Companies in the top bracket category I must have a minimum networth of Rs 5 crore. Sebi now says that all merchant bankers will have to attain that threshold by the time their licences which are usually valid for three years come up for renewal, or close shop.

 

Sebi chairman DR Mehta told newspersons after the meeting that the market regulator had failed to take any decision on modifying the carryforward system. Market players were all keyed up before yesterdays Sebi board meeting on expectations of a positive outcome on the contentious issue. Mehta said the board has sought additional information on risk management and status quo will continue until then.

On the removal of limits on business as recommended by the JR Verma committee, the board felt more information on the existing system was needed before arriving at a decision.

A major decision taken yesterday was that infrastructure companies, given the nature of the project, would be permitted to allowed to list their debt instruments straightaway without having to list their equity first. This will also include partly convertible and fully convertible debentures.

A draft has been presented to the board to regulate credit rating agencies. A committee will be set up consisting of representatives from Sebi/Reserve Bank of India, industry associations and representatives from local and foreign credit rating agencies.

Regulations have also been tightened for mutual funds making it mandatory for them to disclose investments in affiliate companies. No investment will be permitted in a group or affiliate company that is not listed. Moreover, the aggregate investment of all schemes of the mutual fund in group companies that are listed shall not exceed 25 per cent of the net assets of all schemes.

The maximum business that a fund can give a broker inside the group cannot exceed 5 per cent of the total business, as arrived at by taking quarterly averages. In the case of other brokers, if business given by the fund exceeds 5 per cent, it will have to be backed by a declaration and a justification. Two-thirds of trustees will have to be independent as against the current level of 50 per cent.