India Regulator Set to Ease Rules That Caused Bank Bond Selloff
The SEBI logo in Mumbai. (Photograph: BloombergQuint)

India Regulator Set to Ease Rules That Caused Bank Bond Selloff

India’s markets regulator is set to ease proposed rules that caused a selloff in perpetual notes of domestic banks who use them to raise capital, according to people with knowledge of the matter.

The Securities & Exchange Board of India will allow mutual funds to value so-called perpetual debt as 10-year bonds in the financial year starting April 1, instead of the 100-year-debt valuation that was supposed to take effect, the people said, asking not to be identified as the details aren’t public. An announcement is likely soon, they said.

The rules will gradually be tightened toward 100-year treatment over a multiyear timeframe, the people added. A finance ministry spokesman declined to comment. An email to a Sebi representative outside office hours in Mumbai wasn’t immediately answered.

The government had asked Sebi to review the tighter regulations, arguing that mutual funds are dominant purchasers of this debt. The move is good news for Prime Minister Narendra Modi’s administration, which needs banks to boost lending to revive the economy, but lacks the cash to inject into lenders, whose capital is weakened.

Mutual funds hold more than a third of the 900 billion rupees ($12 billion) of Additional Tier 1 bonds that act as an important source of capital for local banks.

Read about India seeking to undo rule that makes bank capital costlier

India Regulator Set to Ease Rules That Caused Bank Bond Selloff

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