Publicly Peddled Placements

Apart from this provision, the so-called private placements are marketed as aggressively as any other issue. Interest rates, inclusive of incentives, are sky-high, with incentives being paid in cash, gifts being offered and other inducements held out to attract the investor.

While institutional investors are unlikely to be duped by such offers and insist on a credit rating, the hard sell is likely to take in the retail depositor. Many of these issues have a minimum amount of as little as Rs 5,000, making it clear that the small investor is the target.

It is high time that Sebi made credit rating completely mandatory, or at least introduced rules which clearly distinguish between private placements and public soliciting. If it is thought desirable to retain the option of waiving credit rating, the minimum deposit should be a very large amount, so that the small investor is not affected. The simplest solution would be to insist on credit ratings for all debt issues.