Capital markets regulator SEBI on Tuesday proposed expanding the definition of qualified institutional buyer (QIB) for investing in debt securities in a bid to increase the supply of funds to the issuers of such securities.
The regulator suggested that certain categories of investors should be included in the QIB segment such as SEBI-regulated entities as well as multistate cooperatives with net worth of over Rs 500 crore.
Among others, pension funds, banking financial companies and housing finance companies, small finance banks, reinsurance companies, refinancing agencies such as MUDRA and universities should be included in the QIB category.
The proposed move would increase the potential investor base for issuers of debt securities and help in further developing the debt markets, Sebi said in its consultation paper.
The Securities and Exchange Board of India (SEBI) has sought public comments on the proposals till May 29.
In its consultation paper, the regulator noted that many investors, with large corpus, financial sophistication and ability to evaluate investment opportunities have emerged. There are also existing entities which could be considered being recognised as QIBs for the same reason.
Such investors can serve to provide required funds to issuers through subscription to debt securities or non-convertible securities, and enhancing the depth in the bond market, SEBI said.
In addition, the regulator felt the need to consider parity for certain category of Indian investors with Foreign Portfolio Investors, who are included in the present definition of QIB.
Noting that QIBs are significant investors in debt securities, Sebi said that expanding the definition for investing into debt securities will serve to broaden the types, class and categories of investors, enhance access to investment opportunities within the primary issuance at electronic debt bidding platform and help in levelling the playing field within the bond market.
Under the proposal, SEBI said that such an entity will be required to provide a self-certification that it has the necessary expertise and skills to evaluate investments into debt securities, undertake risk management and to carry out due diligence in such form as shall be specified and furnish the same to the exchange prior to commencing investments as a QIB.
Such an entity may either have a designated functionary or committee comprising individuals with necessary expertise and skills or may engage an independent registered investment advisor, portfolio manager or merchant banker on an on-going basis for evaluation, advising on risk management and/or for due diligence, SEBI said.
The entity should however take full responsibility for any investments in debt securities made by it from time to time, it added.