Rbi Relaxes Fi Mop-Up Norms

The Reserve Bank of India (RBI) has said that financial institutions (FIs) would no longer require to take approval from it each time they raise funds from the bonds market.

However, this is subject to them following some guidelines issued by the RBI. This was started in the draft guidelines issued by the RBI to all the term lending FIs in connection to resources raising. It may be recalled that during the last monetary policy RBI had indicated that it plans to provide more flexibility and freedom to FI for raising resources and would soon issue draft guideline on the same.

 

However in the draft guidelines, the central bank has not revised any other existing norms for resources raising for the FIs.

According to the draft, the minimum maturity of the bond will have to be three years and in case of bonds having put and call options, the same should not be exercisable before the end of one year from the date of issue of the bond.

Besides this, the bond should not offer an exit option before the end of one year from the date of issue and such option.

In case of coupon offered to the investors, RBI has noted that the yield to maturity (YTM) should not exceed 200 basis points above the YTM of the government securities of the equal residual maturities. Effectively, the FI are yet can not allowed to raise resources having maturity of less then one year.

As mentioned in the monetary policy, RBI draft has stated that the total resources mobilisation will continue to be linked to the net owned funds of the FI-which not exceeding the 10 times the net owned fund as per the latest audited balance sheet.

However, RBI has added that the limit fixed is only an enabling provision, FIs are advised to arrive at their requirements of resources along with maturity structure and the interest rate offered thereon on a realistic basis, derived inter alia, from a sound system of ALM or risk management.