The Hindu Business Line : Norms on subordinated debt raising by PDs

PRIMARY dealers in Government securities may issue subordinate debt instruments in Tier-II and Tier-III capital, with the interest rate spread capped at 200 basis points, over the yield of equal residual maturity of the Government of India dated security at the time of issue.

In its guidelines on capital adequacy standards, Guidelines on Issue of Subordinated Debt Instruments - Tier II and Tier III Capital, for primary dealers (PD), the RBI said that the amount of subordinated debt to be raised may be decided by the board of directors of the PD.

The instruments should be `plain vanilla' with no special features such as options, and the debt securities shall carry a credit rating from a credit rating agency registered with the Securities and Exchange Board of India, the RBI said.

In the case of issue of unlisted subordinated debt, the disclosure requirements prescribed by SEBI for listed companies in terms of the above guidelines should be complied with.

Necessary permission from the Foreign Exchange Department of the RBI should be obtained for issuing the instruments to NRIs and FIIs.

PDs should comply with the terms and conditions, if any, prescribed by SEBI or other regulatory authority with regard to the issue of instruments. Investments by PDs in subordinated debt of other PDs and banks will be assigned 100 per cent risk weight for capital adequacy purpose. Further, the PD's aggregate investments in Tiers II and III bonds issued by other PDs, banks and financial institutions shall be restricted to up to 5 per cent of the investing PD's total capital. The capital for this purpose will be the same as that reckoned for capital adequacy.

The PDs should submit a report to the Internal Debt Management Department, RBI, giving details of the capital raised - amount raised, maturity of the instrument, rate of interest along with a copy of the offer document - soon after the issue is completed.

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