RBI tightens rules for NBFCs funding IPOs

The Reserve Bank of India on Friday announced a limit on bank lenders financing subscriptions to initial share sales to stem the flow of large amounts of borrowed capital by high net worth individuals to such offerings.

There shall be a ceiling of Rs 1 crore per borrower for financing subscription to initial public offer (IPO). NBFCs can fix more conservative limits, RBI said in its revised regulatory framework for non- banking financial companies (NBFCs). The new rule will be effective from 1st of April.

The move to impose a limit on IPO funding follows surplus liquidity in the system being used to fund large subscription from high net worth individuals in recent public offerings. While the extent of IPO financing by NBFCs could not be ascertained immediately, the central bank had pointed to increased commercial paper issuances in its October policy.

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