RBI Introduces Revisions in Redemption Funds and CP Buyback Norms

On January 3, 2024, the Reserve Bank of India (RBI) implemented changes to the norms governing redemption funds and buyback of commercial papers (CPs). This move primarily impacts CPs and non-convertible debentures (NCDs) with original or initial maturity up to one year, reflecting adjustments based on market feedback.

Buyback Timelines Altered: Seven-Day Window Introduced:
Under the new guidelines, issuers of CPs are now permitted to initiate buybacks only after seven days from the date of issue. This represents a departure from the previous 30-day restriction outlined in the Operational Guidelines for Commercial Paper issued by the Fixed Income Money Market and Derivatives Association of India in 2020.

Uniformity in Buyback Offers Ensured:
The revised directives emphasize that the buyback offer must be extended uniformly to all investors in a specific issue, ensuring identical terms and conditions. Investors retain the option to either accept or reject the buyback offer, enhancing transparency and fairness in the process.

Pricing and Information Dissemination Guidelines Established:
According to the updated norms, buybacks of CPs and NCDs are mandated to be executed at the prevailing market price. Issuers are also required to promptly inform the Issuing and Paying Agent (IPA) and Debenture Trustee about buyback details on the execution date, with payments routed through the IPA.

Redemption Fund Handling: Timely Submission to IPA Required:
Guidelines stipulate that issuers must make funds for redemption available to the IPA by 3:00 P.M. on the redemption date, shifting from the previous 2:00 P.M. requirement. This aligns with the norms set by the Fixed Income Money Market and Derivatives Association of India.

Effective Date and Applicability:
The RBI has announced that these directions will be applicable to all entities dealing in CPs and NCDs with original or initial maturity up to one year. The revised norms are scheduled to come into effect from April 01, 2024, allowing stakeholders a transition period to adapt to the changes.

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