RBI/2010-2011/38
DBOD.No. FID.FIC. 1/ 01.02.00/2010-11

01 July, 2010 10
Aashadha 1932 (Saka)

The CEOs of the All-India Term Lending and Refinancing Institutions
(Exim Bank, NABARD, NHB and SIDBI)

Dear Sir,

Master Circular- Resource Raising Norms for Financial Institutions

Please refer to Master Circular DBOD. No. FID.FIC.1/01.02.00/2009-10 dated July 01, 2009 on the captioned subject. The enclosed Master Circular consolidates and updates all the instructions/guidelines on the subject up to June 30, 2010. The Master Circular has also been placed on the web-site of RBI (http://www.rbi.org.in).

2. It may be noted that the instructions contained in the circulars listed in Annex 5 have been consolidated in this master circular.

Yours faithfully,
(Vinay Baijal)
Chief General Manager

Encls: As above

Master Circular on Resource Raising Norms for Financial Institutions

Purpose

To facilitate the specialised financial institutions (FIs) to meet their short-term and long-term resource requirements so as to enable the FIs to cater to sectoral needs of credit, linked to the operations, purpose and objectives with which the FIs were set up as per their respective statutes. This circular also aims at providing level-playing field, by bringing broad convergence in regulatory norms among financial institutions with regard to issue of bonds by them.

Previous instructions

This master circular consolidates and updates all the instructions/guidelines issued by the Reserve Bank of India relating to resource raising by financial institutions contained in the circulars listed in Annex 5.

Application

To all the all-India term-lending and refinancing institutions viz. Exim Bank, NABARD, NHB and SIDBI.

Contents

1. Introduction

The process of reforms in the Indian financial sector since the early nineties has had profound implications for the resource raising of all India Financial Institutions (FIs). With the gradual phasing out of funding to the FIs from the Long-Term Operations (LTO) Funds of the RBI and the discontinuance of the system of allocation of SLR bonds to them, FIs have been raising resources from the market by issuing bonds (both through public and privately placed issues). Some of the FIs being statutory bodies were seeking the approval from the SEBI while others being limited companies were seeking approval from the RBI for raising long term resources through bonds from the market. In order to ensure a level playing field, it was decided to subject all the FIs whether statutory bodies or limited companies to RBI regulations since 1998. Other changes, which have had a bearing on the resource raising capabilities of FIs, include progressive deregulation, introduction of hedging instruments such as interest rate swaps (IRS) and forward rate agreements (FRA), introduction of Asset Liability Management (ALM) system, etc. The foregoing developments necessitated a review of the guidelines relating to resource raising of FIs, particularly through bond-issuance and RBI modified the guidelines on June 21, 2000. In order to take decision expeditiously on the references relating to the issue of Bonds received from FIs, the Reserve Bank has constituted a 'Standing Committee' in which the nominee of the Fls concerned are also invited. The meeting of the Standing Committee is convened either on the same or the following day of receipt of the request from the concerned FI. The FIs are required to furnish details of the proposed bonds issue, indicating the amount to be raised, the manner of raising the same, the purpose for which the funds will be utilised, special features of the proposed issue such as put/call options etc., and the yield to maturity (YTM) on the bonds.

2. Norms for Resource Raising under the 'Umbrella Limit'

The raising of resources by select all-India financial institutions had been subject to regulation by the RBI since the 1990s as an adjunct to monetary policy. Initially, the RBI had prescribed instrument-wise limits for mobilisation of resources by the select FIs through the specified instruments. In May 1997, the instrument-wise ceilings were replaced by an “umbrella limit” linked to the ‘net owned funds’ of the FI concerned, which constituted the overall ceiling for borrowing by the FI through the specified instruments. The system of umbrella limit remains in force even now though a few additional instruments have been included under the limit, over the years. The ‘umbrella limit’ at present consists of five instruments viz., term deposits, term money borrowings, certificates of deposits (CDs), commercial papers (CPs) and inter-corporate deposits (ICDs). The aggregate borrowings through these specified instruments should not at any time exceed 100 per cent of net owned funds (NOF) of the FI concerned as per its latest audited balance sheet. The terms and conditions relating to each of the instruments are set out below.

2.1 Term Deposits

2.2 Term Money Borrowings

2.3 Certificates of Deposit (CDs)

2.4 Commercial Papers (CPs)

2.5 Inter Corporate Deposits (ICDs)

The RBI has not prescribed any norms for raising of resources through ICDs by the FIs. However, the FIs which are structured as companies under the Companies Act 1956, are eligible to issue ICDs as permissible under the Act. The amount of resources raised through ICDs should be within the overall umbrella limit fixed by the RBI. Thus, the issue of ICDs together with other instruments viz. term money, term deposits, CDs and CPs should not exceed 100 per cent of its net owned funds as per the latest audited balance sheet.

3. Norms regarding Issue of Bonds/Debentures

3.1 FIs are not required to seek issue-wise prior approval/registration from the RBI for raising resources by way of issue of bonds, whether by public issue or through private placement, subject to the fulfillment of the following conditions:

1. The minimum maturity of the bond should be 3 years;
   
   
2. In respect of bonds having call/put or both options, the same should not be exercisable before the expiry of one year from the date of issue of bonds;
   
   
3. The yield to maturity (YTM) offered at the time of issue of bonds should not exceed 200 basis points above the YTM on the Government of India securities of equal residual maturities. The effective YTM on instruments having call/put options should also satisfy this requirement. [The yield to maturity offered at the time of issue of bonds should not exceed 200 basis points above the YTM on the Government of India securities of equal residual maturities is not applicable for one year, subject to review with effect from December 8, 2008. On a review on February 1, 2010, the applicability of ceiling of 200 basis points above the YTM on the Government of India securities of equal residual maturities has been kept in abeyance subject to further review.]
   
   
4. No 'Exit' option on the bonds should be offered before the end of one year, from the date of issue.

3.2 The outstanding of total resources mobilised at any point of time by an FI, including the funds mobilised under the 'umbrella limit', as prescribed by the Reserve Bank, should not exceed 10 times its net owned funds as per its latest audited balance sheet.

3.3 The limit fixed for raising resources is only an enabling provision. FIs are advised to arrive at their requirements of resources along with the maturity structure and the interest rate offered thereon on a realistic basis, derived, inter alia, from a sound ALM/Risk Management system.

3.4 In case of floating rate bonds, FIs should seek prior approval from the Reserve Bank, in regard to 'reference rate' selected and the methods of floating rate determination. The same is not required for subsequent individual issues so long as the underlying reference rate and method of floating rate determination remain unchanged.

3.5 Fls should take note to comply with the prudential requirements of other regulatory authorities such as SEBI, etc.

3.6 Fls are required to furnish monthly statements to the RBI in the specified formats given at Annex 3 and 4. The statements relating to a month are to be submitted on or before the 10th day of the following month. The details in respect of public issue of bonds are to be incorporated in the statement for the month during which the respective issue is closed.

3.7 The statements are to be sent to the Chief General Manager, Financial Institutions Division, Department of Banking Operations and Development, Reserve Bank of India, Central Office, World Trade Centre, Cuffe Parade, Mumbai - 400 005; Fax No. 2218 3579.

Annex 1

Proforma of information to be submitted by the issuer of commercial paper to the Reserve Bank of India through the Issuing and Paying Agent (IPA)

To:
The Chief General Manager
Financial Markets Department,
Reserve Bank of India
Central Office,
Mumbai – 400 001.

Through: (Name of IPA)

Dear Sir,

Issue of Commercial Paper

In terms of the guidelines for issuance of commercial paper issued by the Reserve Bank of India dated October 10, 2000, we have issued Commercial Paper as per details furnished hereunder:

1. Name of the issuer :
   
   
2. Registered office and address :
   
   
3. Business activity :
   
   
4. Name/s of stock exchange/s with which shares of the issuer are listed (if applicable):
   
   
5. Tangible net worth as per latest audited balance sheet (copy enclosed):
   
   
6. Total working capital limit :
   
   
7. Outstanding bank borrowings :
   
   
8. Details of commercial paper
   issued (face value)                 : Date     Date     Amount Rate
                                                   of         of
                                                 Issue     Maturity
   
9. Amount of CP outstanding (face value) including the present issue
   
   
10. Rating(s) obtained from the Credit Rating Information Services of India Ltd. (CRISIL) or any other agency approved by the Reserve Bank of India (a copy of the rating certificate should be enclosed):
    
    
11.  Whether standby facility has been provided in respect of CP issue ?
    
    
12. If yes
    
        (a) The amount of standby facility (Rs. crore) :
    
        (b) Provided by (name of bank/FI)

For and on behalf of
----------------------------------
(Name of the issuer)

Annex 2

Certificate

1. We have a valid IPA agreement with the ____________________. (Name of Issuing Company/Institution)

2. We have verified the documents viz., board resolution and certificate issued by Credit Rating Agency submitted by ______________________________________________ (Name of the Issuing Company/Institution) and certify that the documents are in order. Certified copies of original documents are held in our custody.

3.* We also hereby certify that the signatures of the executants of the attached Commercial Paper bearing Sr.No.________dated ____________for Rs.____________ (Rupees _____________________________________) (in words)
tally with the specimen signatures filed by __________________________ (Name of the Issuing Company/Institution)

(Authorised Signatory/Signatories)
(Name and address of Issuing and Paying Agent)

Place:

Date:

* (Applicable to CP in physical form)

Annex 3

Monthly Return on Aggregate Resources Raised

1. Reporting Institution:
   
   
2. Report for the month ended:
   
   
3. Date of report:
   
   
4. Overall borrowing limit (10 times of NOF): Rs. ………… crore.
   
   
5. NOF as per the audited Balance Sheet dated ..…… Rs………………crore
   
   
6. Amount of borrowing outstanding at the end of the month……….: Rs……………crore

Annex 4

Monthly return on resources raised through Bonds

Total amount raised during the month of ……………Rs…………..crore

Cumulative amount raised during the year (April-March) Rs.……….crore.

Annex 5

List of circulars consolidated in the master circular