NBFC's continued decline in investment in commercial papers

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Mumbai, Ta. 28 January 2020, Tuesday

Commercial papers (CPs) invested in non-banking financial companies (NBFCs) have seen a decline in mutual fund industry investment. The decline comes after market director Securities and Exchange Board of India (SEBI) directed the mutual fund industry to invest in NBFC papers that are only listed on the exchange.

CPs are short-term debt instruments of less than one year, issued by companies other than banks.

Through a notification in December last year, Sebi has made it mandatory for fund houses to invest only in NBFCs listed on the Exchange.

The CPI trade volume so far in January has been Rs 8 crore, compared to Rs 5 crore in December 2. In December, the figure stood at Rs 1.8 trillion and in January 5 it was Rs 5.5 trillion, market sources said.

During the period from February to December 3, the repo rate declined by 5 basis points despite the decline in trade volume. However, the effect of the SEBI rule is only partial. NBFC's financial crisis is also responsible for investing in CP.

Fund houses have been avoiding investing in weak NBFCs, after the IL&Fs and DHFL chapters, and they do not risk rollover of the previous CPs, sources added.


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