RBI Boosts Capital Markets with Increased IPO Financing Limits

The Reserve Bank of India (RBI) has announced a significant increase in lending limits aimed at stimulating capital markets. The financing limit for Initial Public Offerings (IPOs) has risen from Rs 10 lakh to Rs 25 lakh per individual, while the limit for loans against shares (LAS) has been raised from Rs 20 lakh to Rs 1 crore. This adjustment is expected to enhance liquidity and encourage participation from high net worth individuals (HNIs) in equity markets.

In a statement, RBI Governor Sanjay Malhotra explained that while loans against shares and IPO financing have existed for some time, the limits had not been revised in many years. “It is only natural that these limits be updated,” he noted. The last revision of the loan against shares limit occurred in 1998. Given the impact of inflation over the years, this increase is viewed as necessary.

Encouraging Market Participation

The RBI’s decision comes at a moment when activity in the primary market is particularly vibrant. Major IPOs expected this year include those from Reliance Jio, Tata Capital, and LG Electronics, all of which are likely to benefit from the increased subscriptions from HNIs. Additionally, the higher limits will apply to units of Real Estate Investment Trusts (REITs) and Infrastructure Investment Trusts (InvITs), further stimulating market engagement.

In addition to the raised lending limits, the RBI has proposed the removal of the ceiling on lending against listed debt securities. This change aims to provide banks with greater flexibility to support investors. The central bank has also relaxed norms for external commercial borrowings, broadening opportunities for both borrowers and lenders.

Comprehensive Reforms to Enhance Liquidity

The RBI’s recent measures also include a reduction in risk parameters for non-banking financial companies (NBFCs) involved in infrastructure lending and housing finance. These adjustments are designed to facilitate ongoing operational projects and allow for the resumption of licensing for new urban cooperative banks after a hiatus of over two decades.

Moreover, the RBI plans to consolidate over 250 regulatory instructions into master directions, which aims to reduce compliance costs for financial institutions. Other initiatives include eased restrictions on transaction accounts, extended timelines for exporters regarding repatriation from International Financial Services Centre (IFSC) accounts, and a six-month foreign exchange outlay for merchanting trade transactions.

The introduction of special rupee Vostro accounts is also noteworthy, as it will allow investments in corporate bonds and commercial papers. Furthermore, the Integrated Ombudsman Scheme will now encompass state and district cooperative banks, enhancing consumer protection and accessibility.

These reforms by the Reserve Bank of India are expected to foster increased credit access, improve overall liquidity in the financial system, and promote broader participation in equity markets. As the country navigates its economic landscape, these changes aim to strengthen investor confidence and support the growth of the capital markets.