Priya Patel
The Reserve Bank of India (RBI) has expanded the eligibility criteria for issuers of commercial papers (CPs), a move that is expected to increase the number of issuers and supply of short-term papers in the market. The new guidelines allow infrastructure investment trusts (InvITs), real estate investment trusts (REITs), cooperative societies, and limited liability partnerships to raise funds through CPs. The changes will take effect from April 1, 2024. The RBI aims to increase the depth of the market and enable more entities to raise funds through CPs. Currently, the CP market is dominated by large corporate issuers, but with the expanded eligibility criteria, other entities such as REITs and InvITs can tap into the CP market to raise funds. CPs issued by these entities are likely to be rated higher, making it easier for them to attract investors. The revised guidelines also include requirements for disclosure of the end-use of funds and restrictions on issuers in the event of default.
According to experts, the expansion of issuer eligibility for CPs will lead to an increase in CP issuances. It is still unclear how much the issuances will increase, but it is expected that REITs and InvITs will tap into the CP market to raise funds. Currently, corporates, NBFCs, and brokerage firms account for over 80% of CP issuances. The RBI’s move to expand eligibility is aimed at increasing the diversity of issuers and providing more funding options in the market.
The changes to the CP guidelines are part of the RBI’s efforts to develop the corporate bond market and provide more funding options for entities in the capital markets. By expanding the eligible issuers, the RBI aims to increase the participation of different types of entities and promote liquidity in the CP market.
