What changed
Earlier, PDs were barred from investing in non-government securities with original maturity under one year, except for CPs and CDs. This circular lifts that restriction for NCDs, allowing PDs to invest in such short-term NCDs issued by corporates and NBFCs. A new 10% cap on unlisted NCDs relative to the non-G-Sec portfolio is introduced.
What it means for you
PDs gain more flexibility to deploy funds in short-term corporate debt, potentially improving yield on their non-G-Sec book. The 10% unlisted NCD limit is a prudential check to manage liquidity and credit risk. Banks that are PDs or lend to PDs should note this expanded investment avenue and the associated risk limits.
What you must do
- Update internal investment policies to reflect the new permission for short-term NCDs up to one year.
- Monitor the 10% cap on unlisted NCDs within the non-G-Sec portfolio on a continuous basis.
- Ensure compliance with extant prudential guidelines and earlier circulars on NCD investments.
- Review counterparty credit limits for corporate and NBFC issuers of short-term NCDs.
Who it affects
Standalone Primary Dealers, Treasury departments of banks acting as PDs, Corporate and NBFC issuers of short-term NCDs
Does this circular apply to all PDs or only standalone ones?
It applies specifically to standalone Primary Dealers, as addressed in the circular.
What is the limit on unlisted NCD investments?
Investments in unlisted NCDs must not exceed 10% of the size of the PD's non-G-Sec portfolio at any point.
Are there any other conditions for investing in these NCDs?
Yes, PDs must follow all extant prudential guidelines and the instructions in the referenced circulars on NCD issuance.