RBI ''s guidelines for PD investments in Debt

Mumbai: The Reserve Bank of India (RBI) has directed primary dealers (PDs) to put in place proper risk management systems for capturing and analysing the risk in respect of non-government securities before making investments and taking remedial measures in time.

The RBI in its guidelines for PDs for investments in non-government securities, issued yesterday and applicable with immediate effect, has also said that the boards of PDs should review the investment, compliance with the prudential limits at least at quarterly intervals.

Firther, PDs are not allowed to invest in non-government securities of original maturity of less than one-year (other than commercial paper and certificates of deposits) and in unrated non-government securities.

The PDs are required to abide by the requirements stipulated by the Securities and Exchange Board of India in respect of corporate debt securities. Accordingly, they should invest only in listed debt securities. However, their investment in unlisted non-government securities can be a maximum of 10 per cent of the size of their non-government securities portfolio on an on-going basis. PDs may invest in existing unlisted securities (issued prior to December 31, 2003) till December 31, 2004 provided the issuers have applied to the stock exchanges for listing and the securities are rated minimum investment grade.

PDs should also ensure that their investment policies, duly approved by the board, are formulated after taking into account this guidelines. PDs, in order to help in the creation of a central database on private placement of debt, should file a copy of all offer documents and any default relating to interest/installment in respect of any privately placed debt with the Credit Information Bureau (India) Ltd.

The guidelines would apply to investments in primary as well as in secondary market and will cover investments in non-government securities issued by corporates, banks, financial institutions and state and Central government sponsored institutions, special purpose vehicles, etc.

However, the guidelines will not be applicable to units of equity oriented mutual fund schemes where any part of the corpus can be invested in equity, venture capital funds, commercial paper, certificate of deposit, and investments in equity shares.