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SEBI proposes norms for retail investors of Tier I bank bonds

21 December, 2015

The Securities and Exchange Board of India (SEBI) has proposed new norms for retail investments in core capital holdings of banks and for allocation of capital by investment managers for Infrastructure Investment Trusts (InviTs).

The capital markets regulator proposed new rules for Additional Tier-1 (AT1) bonds, which are used by retail investors to provide capital to banks. In view of rising non-performing assets, the Reserve Bank of India had last year allowed banks to issue AT1 instruments to retail investors.

While these bonds have been instrumental in providing much-needed capital to banks, the risk has been much more related to other debt products as these can sometimes lead to loss of coupon and principal amount.

The proposed norms for retail or public issuance of bonds issued by SEBI on Friday set the minimum investment at Rs 2 lakh, due to the additional risk as compared to other debt products so that only well-informed investors enter this niche market. 

SEBI also proposed characterization of risks under the draft prospectus for AT1 bonds, banks issuing Perpetual Non-Cumulative Preference Shares (PNCPS) and Perpetual Debt Instruments (PDIs) to retail investors.

“It may be specified that PNCPS and PDIs are relatively risky debt instruments and are significantly different from term deposits offered by banks,” it said. The regulator also made it compulsory for banks issuing AT1 instruments and having any outstanding issues of PNCPS or Innovative Perpetual Debt instruments (IPDI) under the Basel-II framework to adequate disclosures showing distinction between Basel-II and Basel-III perpetual instruments.

The regulator also proposed to revise norms for public issue of InviTs so that investment bankers will only be allowed to allocate not more than 75 per cent to qualified institutional buyers with up to 60 per cent of the portion available for allocation of QIBs to anchor investors.

It proposed that disclosures in the offer documents and draft papers be kept in the public domain for at least 21 days while the issue would need to be kept open for at least three working days but not more than 30 days.

The regulator proposed certain norms to make the instruments safer by directing that no InviTs make a public issue of units if it or any of its sponsors, investment manager or trustee were barred from accessing the capital market or was a willful defaulter as defined by the RBI.

SEBI had introduced InviTs and REITs in September last year as part of initiatives by authorities to inject some energy in the infrastructure and real estate sector.

While the norms are much similar to that of IPOs, what remains to be seen is whether InviTs will be able to attract as much investor attention as IPOs. The IPO market in India has been hot with companies garnering over Rs 13,000 crore from the market. SEBI in its earlier norms had specified that InviTs would require a minimum asset base of Rs 500 crore to get listed while minimum initial offer size of InviTs should be Rs 250 crore with a public float of at least 25 per cent. 

SEBI has fixed January 5 as the date for receiving stakeholders’ views and public comments for the proposed norms.


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SEBI proposes norms for retail investors of Tier I bank bonds

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