The new reform under the direction of SEBI for perpetual bonds has a downfall effect on the Indian financial market.
The performance of the Indian equity market has shown a downfall over the past couple of months. The baking stocks specifically are not doing well in the market. The global events, pandemic, and macro-economic indicators are some of the reasons for its languish.
Nifty Bank went down from 5% since the last four business days in the financial market. Additionally, Nifty50 went 3% off-track.
The reform under the SEBI’s direction regarding perpetual bonds has made a negative impact on the banking stocks.
Perpetual bonds are the bonds which public sector bank, NBFCs, etc issues. These bonds have no maturity date and are not redeemable. These possess a special characteristic that the issuer pays the coupon amount to the bondholder for an undefined period. Though these bonds have a call option
According to the circular of March 10, 2021, SEBI has set a cap limit on mutual funds investment on bonds. The limit is 10 percent from one issuer.
The recent reform has strict regulation over the bonds. The central bank is now more careful towards the tight formulation of the reform.
Therefore, it is difficult for public sector banks to raise capital. Public sector banks are the dominant issuers of perpetual bonds. Consequently, it will put pressure on the government to raise capital for the functioning of the bank.
Earlier the finance ministry took the initiative to demand the withdrawal of the reform to SEBI. However, it was not taken into consideration. Instead, the security market regulator reverted that it would absorb its concentration risk
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