India's market regulator relaxes rules for mandatory bond market borrowing

BENGALURU, Sept 21 (Reuters) - Indias market regulator said on Thursday it will remove penalties on companies which were unable to meet a mandatory bond market borrowing quota.

The Securities and Exchange Board of India (SEBI) had first proposed these changes last month after getting feedback from the market that borrowing from banks continues to be more cost effective compared with raising funds via bond issues.

The regulator said it would grant more flexibility to large companies for incremental borrowing via bonds.

Under existing rules, large companies are required to raise 25% of their incremental borrowings by way of issuance of debt securities. Failing to raise this amount attracted a penalty of 0.2% of the shortfall in the amount borrowed.

The regulator said that after scrapping the penalty it will provide incentives instead to encourage companies to come to the bond market for their borrowing needs. The regulator also increased the eligibility criteria for companies to qualify for the mandatory borrowing from bond market.

Currently companies which have outstanding long-term borrowings of 1 billion Indian rupees ($12.03 million) or above from banks need to mandatorily borrow from bond market.