Jury out on partial credit enhancements for NBFCs

By Sawant Singh and Aditya Bhargava, Phoenix Legal
0
1916
LinkedIn
Facebook
Twitter
Whatsapp
Telegram
Copy link

To reduce the burden on banks for financing infrastructure projects, and to promote the use of the corporate bond market for this purpose, the Reserve Bank of India (RBI) permitted banks to provide partial credit enhancements (PCEs) to corporate bonds in 2015. PCEs were intended to enhance the credit rating of bonds, thereby encouraging long-term investors such as insurance funds and pension funds to invest in such bonds.

Sawant-Singh-Phoenix-Legal
Sawant Singh
Phoenix Legal

Following its September 2015 circular, banks were permitted to provide PCEs by way of non-funded subordinated contingent line of credit facilities, which could be drawn on in case of shortfalls in cash flows for servicing interest and principal payments on bonds supported by PCEs.

This PCE facility was limited to companies and special purpose vehicles funding infrastructure projects. The September 2015 circular expressly restricted banks from providing PCEs by way of guarantee, presumably so as to avoid a situation of the credit rating of the bonds “piggybacking” on the credit rating of the bank.

You must be a subscribersubscribersubscribersubscriber to read this content, please subscribesubscribesubscribesubscribe today.

For group subscribers, please click here to access.
Interested in group subscription? Please contact us.

你需要登录去解锁本文内容。欢迎注册账号。如果想阅读月刊所有文章,欢迎成为我们的订阅会员成为我们的订阅会员

已有集团订阅,可点击此处继续浏览。
如对集团订阅感兴趣,请联络我们

Sawant Singh and Aditya Bhargava are partners at the Mumbai office of Phoenix Legal.

Phoenix-LegalPhoenix Legal
Second Floor
254, Okhla Industrial
Estate Phase III
New Delhi – 110 020
India
Contact details
Tel +91 11 4983 0000 / +91 22 4340 8500
Fax: +91 11 4983 0099 / +91 22 4340 8501 Email: delhi@phoenixlegal.in
mumbai@phoenixlegal.in

LinkedIn
Facebook
Twitter
Whatsapp
Telegram
Copy link