What changed
The RBI revised paragraph 3.6 of the Master Circular on Operational Guidelines to Primary Dealers, effective October 1, 2010. The ICD borrowing limit for standalone PDs was raised from 50% to 75% of NOF as at end-March of the preceding financial year. The earlier condition that ICDs should be used 'sparingly' and not as a continuous source of funds has been removed, allowing PDs to raise ICDs as per their funding needs.
What it means for you
Standalone PDs now have greater flexibility to raise short-term funds through ICDs, which can help them manage liquidity more efficiently. The higher cap reduces reliance on other costlier funding sources, but PDs must still adhere to ALM discipline and board-approved policies. The removal of the 'sparingly' clause signals RBI's comfort with ICDs as a regular funding tool, though the prohibition on placing funds in the ICD market remains.
What you must do
- Update your board-approved ICD policy to reflect the new 75% of NOF ceiling and remove any reference to 'sparing use' or 'not a continuous source'.
- Ensure ICD borrowings do not exceed 75% of NOF as at end-March of the preceding financial year.
- Maintain a minimum tenor of one week for all ICDs and continue arms-length pricing for related-party deposits.
- Disclose all related-party ICD transactions in financial statements and comply with ALM norms.
- Do not place any funds in the ICD market; the prohibition remains unchanged.
Who it affects
All standalone primary dealers (PDs) in India, Treasury and ALM teams of standalone PDs, Board of directors of standalone PDs
What is the new ICD limit for standalone PDs?
The ceiling has been raised from 50% to 75% of net owned funds (NOF) as at end-March of the preceding financial year.
Can PDs now use ICDs as a regular funding source?
Yes, the earlier restriction that ICDs should be used 'sparingly' and not as a continuous source has been removed. PDs can raise ICDs based on their funding needs.
Are there any new compliance requirements?
No new requirements beyond existing ones: board-approved policy, minimum one-week tenor, arms-length pricing for related parties, disclosure in financial statements, and ALM discipline. The prohibition on placing funds in the ICD market continues.