What changed
RBI introduced three key relaxations for standalone Primary Dealers: a sub-limit of 50% of net owned funds for corporate bond investments within the existing 225% call money borrowing limit, permission to invest in Tier II bonds of other PDs, banks, and FIs up to 10% of the investing PD's total capital funds, and a new borrowing limit of 150% of NOF through Inter Corporate Deposits.
What it means for you
These measures are designed to deepen standalone PDs' participation in the corporate bond market, giving them more flexibility to allocate capital to corporate debt. The Tier II bond investment allowance opens a new avenue for cross-sector capital deployment, while the ICD borrowing limit provides additional liquidity management options. Banks and financial institutions may see increased demand for their Tier II instruments from PDs.
What you must do
- Review your PD's current NOF and capital funds to assess headroom under the new sub-limits.
- Evaluate opportunities to invest in Tier II bonds of other PDs, banks, and FIs within the 10% capital funds cap.
- Update internal risk and liquidity policies to incorporate the new 150% NOF ICD borrowing limit.
- Monitor compliance with the overall 225% call money borrowing limit while using the corporate bond sub-limit.
Who it affects
Standalone Primary Dealers, Banks issuing Tier II bonds, Financial institutions issuing Tier II bonds, Corporate bond market participants
What is the new sub-limit for corporate bond investments by PDs?
PDs can now use up to 50% of their net owned funds for corporate bond investments, within the overall 225% of NOF limit for call/notice money market borrowing.
Can PDs invest in Tier II bonds of other entities?
Yes, PDs are permitted to invest in Tier II bonds issued by other PDs, banks, and financial institutions, up to 10% of the investing PD's total capital funds.
What is the new borrowing limit through Inter Corporate Deposits for PDs?
PDs can now borrow up to 150% of their net owned funds as at the end of March of the preceding financial year through Inter Corporate Deposits.