The market regulator has proposed a review of the framework for borrowings by large corporates.

The Securities and Exchange Board of India (Sebi) released a consultation paper for the same on August 10.

The framework, which mandated that large corporates raise at least 25 percent of their incremental borrowings for a fiscal by issuing debt securities, had been put in place to deepen the bond market.

Also read: Sebi releases procedure to obtain approval for change in control of IPO’s merchant bankers, bankers

It was done to align with the Union government’s recommendation in budget of 2018-2019: “SEBI will also consider mandating, beginning with large corporates to meet about one-fourth of their financing needs from the debt market.”

But the large corporates went back to the regulator with feedback that funds from banks and financial institutions were more cost-effective than raising funds through debt securities, that government-supported interest subsidy benefits are available on term loans but the same benefits are not available for funds raised from the market, and that in some sectors such as the power sector keeping the cost of debt low is critical.

The industry players suggested that “the decision to borrow funds at the best prevailing rate, as per market conditions, may be best left to the entity concerned”.

They also wanted the threshold of long-term outstanding borrowing—of Rs 100 crore—to be considered a large corporate (LC) be raised to Rs 500 crore.

To make it easier for the large corporates to comply, the regulator has come up with suggestions including raising this threshold to Rs 500 crore.

“It was felt that the threshold should be aligned with the threshold of “high value debt listed entity” to have uniformity in the Regulations. This would also be a breather for companies with outstanding long term borrowings of less than Rs.500 crores to prepare themselves for compliance with these provisions once the framework becomes applicable to them,” said the consultation paper.

The other proposals include removal of credit rating as a criterion for identifying an entity as an LC and the removal of provision of penalty in the event of non-compliance of the LC.