The Reserve Bank of India (RBI) has asked non-banking financial companies (NBFCs) not to raise money in private placement from retail investors. RBI said, "It has been observed NBFCs have lately been raising resources from the retail public on a large scale, through private placement, especially by issue of debentures."
The central bank has brought private placement for NBFCs at par with other financial companies under Companies Act, 1956 which was not applicable to them.
The banking regulator said private placement of debentures should be restricted to 49 investors identified upfront by NBFCs. Minimum subscription amount for a single investor would be Rs 25 lakh and in multiples of Rs 10 lakh thereafter, RBI said in a circular to NBFCs.
Also money raised by NBFCs through debentures should be used by themselves and shouldn't be used as resource for other group or parent firms, RBI said.
Between two private placements there should be the gap of minimum six months. NBFCs can't give loans against security of their own debentures whether publicly issued or privately placed, RBI said.
Further Thursday's guidelines will override old instructions wherever contradictory, RBI clarified.
RBI also said that all debentures including short term non convertible debentures (NCDs) should be fully secured at the time of issuance. If they aren't fully secured at the time of issuance the proceeds from the issue should be kept in an escrow account and should be secured within one month of issuance.
Further RBI said that only those debentures that are either compulsorily convertible into equity or fully secured would be exempted from the definition of public deposits. "Hybrid and subordinated debt with a maturity not less than sixty months would continue to be exempted from the definition of public deposits provided there is no option for recall by the issuer within the period" RBI said.
KUB Rao committee on gold loan companies had expressed concerns about gold loan companies raising money by placing debentures with retail investors. These norms would cover gold loan companies along with all NBFCs.
