Framework for corporate bonds

To deepen the corporate bonds market, Sebi came out with a framework that will require a large corporate to raise 25 per cent borrowings through this route from next fiscal. In case a large corporate is unable to comply with the requirement, Sebi said such entities will have to provide an explanation for such shortfall to the stock exchanges in a prescribed manner. 

For the entities following April-March as their financial year, the framework will come into effect from April 1, 2019, and for the firms which follow calendar year as their financial year, the guidelines will become effective from January 1, 2020. Defining a large corporate, Sebi said such firms need to have an outstanding long-term borrowing of at least Rs 100 crore; a credit rating of 'AA and above; and target to finance themselves with long-term borrowings (above 1 year).  

This is part of an effort to reduce reliance on banks for financing corporates and simultaneously developing a liquid and vibrant corporate bond market. From the financial year 2021-22, Sebi said that the requirement of mandatory borrowing by a large corporate in a financial year will need to be met over a contiguous block of two years.