SEBI eases norms for large firms tapping debt market

Subject: Economy

Section: Capital market

In News: SEBI eases norms for large firms tapping debt market

Key Points:

SEBI eases norms for large corporates tapping debt market in addition to raising threshold for defining large corporates, removes penalty, provides incentives
A number of relaxations to large corporates (LCs) for meeting their financing needs from the debt market:
- Earlier SEBI had mandated LCs to meet 25 per cent of their financing needs from the debt market, with an aim of deepening the corporate bond market in India.
- SEBI decided to raise the monetary threshold for defining LCs. This will effectively will reduce the number of entities qualifying as LCs. SEBI release did not specify the quantum of the threshold, a consultation paper last month had proposed to raise the threshold for the outstanding long-term borrowings to at least ₹500 crore from the current ₹100 crore for identifying any entity as LCs.
- The SEBI board has proposed removing the penalty on LCs which are not able to raise a certain percentage of incremental borrowing from the debt market. At present, a monetary penalty of 0.2 per cent of the shortfall in the borrowed amount at the end of three years is to be levied.
- Additionally, SEBI will provide incentives and moderated disincentives for corporates to raise money from the debt market.

Why the relaxation?

SEBI had found that about a third of the identified LCs did not raise the minimum 25 per cent of their incremental borrowing through issuance of debt securities in FY21-22.
Tapping the debt market, is costlier than raising funds from banks and financial institutions.

Why SEBI brought mandatory bond financing?

The measure was taken to give depth and liquidity to the bond market.
The move would also aid investors such as insurers, pension and provident funds which are required to invest a particular percentage of their incremental receipts in corporate bonds and could be hurt by lack of supply of issuances.