Sebi to relax rules around mandatory borrowing from corporate bond market

Regulator could also clear framework for index providers; decisions likely at Thursday's board meet

The Securities and Exchange Board of India (Sebi) is likely to relax rules pertaining to mandatory borrowing from the corporate bond market and introduce a regulatory framework for index providers during its board meeting scheduled for Thursday, according to sources familiar with the matter.

Other potential decisions include a review of investment routes for overseas investors and changes to the structure of the Investor Education and Protection Fund for real estate investment trusts and infrastructure investment trusts.

Sources indicate that Sebi’s board may not address much-anticipated proposals, such as an overhaul of delisting norms and the total expense ratio (TER) structure for the mutual fund (MF) industry, as these require further deliberation.

 

Following representations by large corporates, the capital markets regulator is considering the removal of penalties imposed for any shortfalls in incremental borrowings through corporate bonds.

Under the new norms, large corporates are required to raise 25 per cent of their incremental borrowings through the issuance of debt securities. Failure to comply results in a penalty of 0.2 per cent of
 the shortfall.

These new norms, aimed at developing the corporate bond markets and reducing pressure on the banking system, became effective in March 2023, with a glide path extended until March 2024.

According to sources, Sebi may introduce incentives for corporates meeting these thresholds, along with an increase in the minimum outstanding long-term borrowing requirement to Rs 500 crore or above for eligibility as a large corporate. The regulator may also eliminate the 1 per cent security deposit requirement for the public issue of debt securities.

The Sebi board is also likely to grant final approval for the regulatory framework for index providers. The board had previously given in-principle approval to the decision during its March meeting. However, Sebi had to make further changes to the framework before revisiting the proposal at its board meeting.

Sebi aims to enhance transparency in the methodology and require additional disclosures from index providers whose indices have users in India. This move comes at a time when investing through the exchange-traded fund route has gained wide acceptance, thereby giving index providers significant influence in the market.

Queries sent to Sebi did not yield any response at the time of going to press.

Additionally, the regulator is seeking to establish a framework that provides a common structure for cybersecurity for market infrastructure institutions such as stock exchanges and depositories, as well as other regulated entities.

“In the past two months, Sebi has issued a number of proposals in a wide range of areas. Some of them, such as changes to the MF TER structure and delisting regulations, require further extensive consultation. There have been divergent submissions from the industry that are being further analysed. Similarly, proposals aimed at regulating the activities of financial influencers will also require more deliberation before they are presented to the board,” said a source.