Mumbai: Private placement of corporate bonds, especially the unrated ones, will now die a natural death with the Reserve Bank of India (RBI) planning to come out with tighter norms for bank investment in non-SLR instruments. Nevertheless, it will brighten the prospects of rated corporate bonds.
Announcing the mid-year review of the monetary and credit policy, the RBI, citing rising concerns about increasing bank investments through private placement of debt, said it would tighten norms for non-SLR investment by banks and financial intermediaries. The non-transparent practices in this market could be a matter of concern, the RBI said, adding it planned to strengthen its prudential guidelines and internal rating systems.
Says Kotak Mahindra Mutual Fund CEO Shekhar Sathe: With regard to the private placement issue, top-rate corporate bodies will not be affected, but the second-rung corporate entities will definitely find it harder to access money through this route.
Most fund managers feel the tightening of non-SLR investment norms will improve the quality of bond offers, which will in turn strengthen the debt market. The private placement market for non-SLR bonds is growing at a rapid pace without appropriate monitoring. It is reassuring that the RBI has moved to regulate the same. The apex bank should ensure that the market develops in volume and investor participation in gilt market too increases, says Franklin Templeton Mutual Fund chief investment officer Nilesh Shah.
The RBI, in its statement, also said: There is a need for dissemination of information on secondary market trades in privately-placed debt and to this end, banks and FIs have already been advised that effective 31 October 2001, they will be permitted to make fresh investments and hold bonds and debentures, privately placed or otherwise, only in dematerialised form. The central bank said these arrangements would apply uniformly to all bonds issued by companies, banks, financial intermediaries, state and federal government institutions.
Says Alliance Capital CEO Nikhil Johri: The caution on private debt placements has been done with an eye on the treasury operations. Typically, private placement decisions are taken in a few hours while credit decisions take months.