RBI Tightens Rules For NBFC Financing Of IPOs Starting Next Financial Year

The Reserve Bank of India has clamped down on non-bank lenders financing subscriptions to initial public offerings. The change in rules is part of the regulator's new regulations for non-bank lenders.

"There shall be a ceiling of Rs 1 crore per borrower for financing subscription to initial public offer. NBFCs can fix more conservative limits," the RBI said as part of the rules.

The rules kick-in from April 1, 2022.

The regulator has toyed with caps on NBFC financing of IPOs in the past but has restrained from implementing it. This time around, a large surplus of liquidity is believed to have fuelled large subscriptions from high net worth individuals into recent public offerings, prompting RBI restrictions.

While precise data on the extent of NBFC financing of IPOs is not available, signals from the commercial paper market suggest it has been substantial.

For instance, the RBI in its October Monetary Policy Report had pointed to a sharp jump in commercial paper issuance alongside the rise in IPOs.

"Riding on the surplus liquidity conditions, commercial paper issuances increased substantially to Rs 10.1 lakh crore during H1:2021-22 from Rs 7.9 lakh crore during the corresponding period of 2020-21," the RBI said. The share of NBFCs in total CP issuances increased to 43.2% in the first half of 2021-22 from 21.9% in the corresponding period of the previous year.

The increased issuances by NBFCs was partly to mobilise resources for IPOs, the report said.

The current financial year has already seen 44 IPOs raising Rs 63,490 crore, according to data from Prime Database. With large issuances still lined up, issuances could overtake the Rs 74,707 crore raised last fiscal year and the record high of Rs 98,984 raised in 2017-18.