Clamping Down on IPO Financing: The Beginning of the End for Genuine Investors

This essay was adjudged the best entry in the Third NLUJ CSBF Essay Writing Competition, 2021-22. The article was submitted by Parameswaran Chidamparam & Khushi Dua.

Abstract

In the past year, the Indian Capital Market has witnessed an IPO frenzy, with several IPOs subscribed multiple times. Such oversubscriptions occurred as a result of Non-Banking Financial Companies being actively involved in lending funds for IPO subscriptions at low margin rates. To clamp down on excessive lending, the Reserve Bank of India intervened by introducing a ceiling on the amount NBFCs can lend for IPO financing which will be effective from April 1, 2022. In this article, we examine the existing regulatory framework on NBFCs’ exposure to the capital market through IPO financing and discuss the detrimental effects it can have on the shadow banking sector. Although the RBI’s intervention in some form was necessary, we argue that the RBI did not adopt the most efficient approach. While we acknowledge the positive effects that the borrowing limit can bring, we conclude that it may disincentivize long-term investors with genuine interests in a company. Ultimately, we suggest alternative approaches that the RBI can take to ensure that the IPO market retains long-term investors while also minimizing the risk to the shadow banking sector.

Introduction

The Indian economy has witnessed a surge in Initial Public Offers (hereinafter ‘IPOs’) in the past year, with reports indicating that IPO activities increased by a whopping 156% in 2021.[i] The attractive IPO market has presented multiple opportunities to various investors looking for listing day gains. These wealthy investors generally borrow funds from lending institutions such as Non-Banking Financial Companies (hereinafter ‘NBFCs’) to subscribe to IPOs.[ii] Such investors have to submit bid applications worth two lakh rupees or more and are known as High-Net-Worth Individuals (hereinafter, ‘HNI’).[iii] The lack of a regulatory framework to control borrowing coupled with the Securities and Exchange Board of India (Issue of Capital and Disclosure Requirements) Regulations (hereinafter ‘ICDR Regulations’) has encouraged investors to engage in excessive borrowing. The ICDR Regulations provide allocation benefits to HNIs, which encourages them to oversubscribe to IPO shares. Although the SEBI has taken steps to change the allocation method, the amendments to the ICDR Regulations do not completely eliminate excess borrowing by HNIs for oversubscription purposes.     

To curb excessive borrowing from NBFCs, the Reserve Bank of India (hereinafter ‘RBI’) introduced its scale-based regulations (hereinafter ‘SBR’), which imposes a cap of Rs. 1 crore on NBFCs for IPO financing. The cap will be effective from April 1, 2022. This article examines the possible implications of the borrowing limit. It unfolds in five parts. In Part I, we examine and argue that the ICDR Regulations do not completely disincentivize oversubscription of IPOs using borrowed finances. Part II provides insights into existing regulations on IPO financing. Part III discusses the possible consequences of IPO financing in the absence of the ceiling and argues that intervention by the RBI was necessary to fulfil financial policy goals. In Part IV, we contemplate the future effects of the borrowing limit. We conclude in Part V by offering a suitable alternative that addresses one of the major drawbacks of the ceiling, which is its blockading effect on genuine long-term investors.

I. Proportionate Allotment and the Incentive to Oversubscribe with Borrowed Finances

Oversubscription is a situation that arises when the demand for the shares of a company exceeds the number of shares it issues. In the past four financial years, 48 out of 106 IPOs (45.28%) have been oversubscribed over ten times in the non-institutional investors’ (hereinafter ‘NIIs’) category.[iv] For example, Paras Defence IPO’s HNI portion of Rs. 171 crores received a bid of Rs. 24,951 crores and was thereby oversubscribed by 928 times. Similarly, the IPOs of Latent View, Tega Industries, Nykaa, etc., in the NII category witnessed huge oversubscription.[v]

SEBI attributed such oversubscription to the proportionate allotment rule in the NII category.[vi] The ICDR Regulations require the issuer to allocate a certain number of shares to different categories of investors based on the type of issue, i.e., fixed price and book built issues.[vii] Fixed price issues require fifty percent shares to be allocated to retail individual investors (hereinafter ‘RIIs’),[viii] and the other fifty percent to be allocated to NIIs and qualified institutional buyers (hereinafter ‘QIBs’).[ix] In book-built issues, the issuer can allocate between 15-65% of the total number of shares to NIIs.[x]

A recent SEBI Consultation Paper indicates that issuers have been engaging in artificial book-built issues with low price bands to enable higher allocation to NIIs.[xi]  Until the Amendment to the ICDR Regulations in October 2021, there was no requirement for the issuer to allot a minimum number of shares to each investor in the NII category. The effect of such a rule was that investors who submitted higher bid applications received shares while those with lower application sizes were left empty-handed.[xii]

For example, if a company issues 1 crore shares worth Rs. 1000 each. 35% is allocated for RIIs, 15% for NIIs and 50% for QIBs. The maximum bid size that an NII can make is 50% of Rs. 1000 crores, which is Rs. 500 crores. NIIs can make such a bid because the ICDR Regulations allow them to make bids not exceeding the value of shares allocated to RIIs and NIIs.[xiii] However, there are only 15 lakh shares that can be allotted to NIIs. In such a scenario, if NIIs make bids 100 times in excess of the number of shares that can be allotted, each person would get 1/100th of their application size as per the proportionate allotment rule. If an investor makes an application worth Rs.500 crores, then the investor would get Rs.5 crores worth of shares, which is the maximum that any investor in the NII category can obtain. Such a regime encourages NIIs who are generally HNIs to avail huge loans from lending institutions to ensure that they are allotted a larger number of shares.[xiv]

The amendment to the ICDR Regulations has changed the allocation rules. According to Regulation 49(4A), every NII will have to be allotted the minimum application size if there are sufficient shares in the NII category.[xv] It is only the remaining shares that will be allocated on a proportionate basis.[xvi] Apart from this, the amendment has also stratified NIIs into two parts. The ICDR Regulations require one-third of the NII category to be allocated to application sizes of Rs.2-10 lakhs, and the remaining two-thirds to be allocated to applications with values greater than Rs. 10 lakhs.[xvii] These amendments have definitely ensured a more equitable allotment process from the investors’ perspective. However, from a lending perspective, the amendment may not have much of an effect. Even with the amendments to the ICDR, HNIs could still borrow funds from lending institutions. This is possible if they are confident that they would benefit from issuers allocating excess shares in the NII segment on a proportionate basis. Hence the amendments do not disincentivize HNIs from placing outsized bids in IPOs by resorting to margin financing.

II. IPO Financing under the current regulatory regime

Margin financing refers to short-term loans offered by lending institutions such as banks and NBFCs wherein investors pay a margin amount to avail the loan, and institutions fund the remaining amount. When such financing is done to subscribe to IPOs, it is known as IPO financing.[xviii] Generally, loans for IPO financing are given for 3-4 days with a high-interest rate. The present regulatory regime places a ceiling limit only upon banks for IPO financing. Banks can lend a maximum amount of Rs. 10 lakhs to individuals and institutions to subscribe to IPOs.[xix] Additionally, they have to maintain a uniform margin of 50% on advances of loans,[xx] including IPO financing.[xxi] However, NBFCs do not have a regulatory limit for IPO financing and the margin rate.

With the lack of a regulatory framework, NBFCs dominate the IPO financing market. Since NIIs can place bids for shares allocated to both the RII segment and the NII segment,[xxii] IPO financing facilities are leveraged by NIIs. NBFCs provide massive borrowing facilities for low margins; hence HNIs easily avail this facility to receive huge loans and oversubscribe to shares in the hope of listing day gains. For example, an HNI can file an application for shares worth Rs. 100 crores or even more by borrowing funds from the NBFCs at a low margin rate. NBFCs lend somewhere between 90-99% of the total application amount. The issue is oversubscribed by 100 times in the NII category. The HNI will get shares worth Rs. 1 crore. On listing day, the HNI could sell shares immediately, pay back the loan amount and earn profits.

However, we cannot ignore the possibility of loss in the stock market. Non-allocation of shares and listing day losses can lead to substantial financial risks for NIIs and NBFCs. Similarly, if fewer shares are allocated, it can cause losses. The following example illustrates such a situation: Two HNIs X and Y want to apply for 10,000 shares in the IPOs of A and B, respectively. The IPO offer price is Rs. 1000 per share for both companies. So, the application amount for each IPO would be Rs. 1,00,00,000. X and Y borrowed funds for 7 days at an interest rate of 8% p.a. by paying the margin requirement of 1%. The loan amount would be Rs. 99 lakhs. Assuming shares of both the companies are listed at a premium of 10%, there is a listing day gain. X was allocated 1000 shares of company A, and Y was allocated 100 shares of company B.

IPO InformationCompany ACompany B
Application amount (Rs.)1,00,00,0001,00,00,000
Borrowed funds (Rs.) [After deducting 1% margin requirement]99,00,00099,00,000
No. of shares allocated1000100
Profit made (Rs.) without borrowing1,00,00010,000
Interest for 7 days (Rs.)15,18915,189
Profit/Loss after paying interest on borrowed funds (Rs.)84,811(5189)

From the above example, it is clear that IPO financing carries huge risks. Investors can face losses despite the shares being issued at a premium. NBFCs are aggressively involved in the IPO financing business and borrow funds from the money market to fulfill HNIs’ needs to subscribe to IPOs. In December 2021, NBFCs borrowed more than Rs. 42,000 crores in a week’s time from the money market for IPO financing.[xxiii] Failure to recover the loans given for IPOs could prove detrimental to the financial health of the banking sector.

III. Margin Financing, its Impacts and Why the RBI Was Right to Intervene

A. Commercial Paper Issuances and their Correlation with IPO Timelines

HNIs usually take the margin financing route to fund their bid applications. NBFCs themselves do not have the funds to finance such huge borrowings. They often have to rely on the money market to procure them through debt instruments such as commercial papers (hereinafter ‘CPs’). CPs are short-term unsecured debt instruments issued by corporations with a high credit rating that have short maturity periods.[xxiv]  In the 2021-22 Financial Year, there has been a sharp rise in the amounts that NBFCs have raised through CP issuances despite an increase in the rates on these instruments.[xxv] Incidentally, CP issuances by NBFCs peaked when there was a boom in IPO activity.[xxvi]

Figure 1[xxvii]
Figure 2[xxviii]

From Figures 1 and 2 above, it is clear that Non-Government NBFCs had a 40-60% share in CP issuances in July and August, 2021, which was when IPO numbers peaked. The effect of overreliance on CPs could result in a liquidity crisis in the NBFC sector, similar to what occurred in 2018.     

B. The Need for the RBI to prevent a spillover-based liquidity crisis in the NBFC Sector

Apart from the possibility of NIIs being unable to return loan amounts due to listing day losses, margin financing poses several other risks to the entire banking sector. While the capital market exposure of banks is limited to 40% of their net worth,[xxix] no such limit exists for NBFCs. The absence of a limit could lead to a repeat of the NBFC crisis that took place in the aftermath of defaults by Infrastructure Leasing & Financial Services and Dewan Housing Finance Limited.[xxx] A recent Economic Survey indicates that the earlier liquidity crisis in the NBFC sector was caused by overreliance on short-term borrowing mechanisms, with one of the major sources of debt being CPs.[xxxi]

Housing finance companies issued CPs to fund long-term investments.[xxxii] However, this resulted in them having to roll over debts on a short-term basis. Such rollovers force them to refinance their debts at higher rates due to the mismatch between the duration of assets and liabilities.[xxxiii] This is known as the rollover risk. Since NBFCs required constant refinancing and their expected cashflows were reducing, owners of CP issues which are mostly from the Liquid Debt Mutual Funds Sector (hereinafter ‘LDMFs’) began to redeem their CPs rapidly. Additionally, LDMFs reduced the amount of funding they provided to the NBFC sector. The apprehensions of investors are not restricted to a single NBFC. Therefore, such rapid redemption of CPs resulted in a liquidity crisis in the entire sector.[xxxiv]

A similar liquidity crisis could result from NBFCs financing IPOs through HNIs as well. There may arise situations where NBFCs would have to refinance debts. For example, if an NBFC issues CPs to lend money to HNIs, and the IPO is halted by an injunction, the NBFC would have to refinance its debt.[xxxv] Such a situation is not unheard of.[xxxvi] In Ajanta Manufacturing Co. Ltd. v. Ajanta India Ltd., the Delhi High Court, in an interim order, restrained Ajanta Manufacturing Co. Ltd. from proceeding with a public issue due to a dispute regarding the use of a trademark.[xxxvii] Similar situations have arisen in the recent past where Zostel filed an injunction application to restrain OYO from going public.[xxxviii] If courts grant such injunctions and the dispute drags on, NBFCs that have CP obligations would be adversely affected and this could affect liquidity in the entire sector. Therefore, the RBI’s introduction of the SBR which limits the amount NBFCs can lend for IPO financing to Rs.1 crore is in line with the policy objective of “conserving capital among banks and NBFCs” and preventing a liquidity crisis due to the “interconnectedness” of the sector.[xxxix]

C. Learning from the Chinese Experience – Preventing an equity Bubble rather than reacting to it

Between July 2014 and June 2015, the Chinese stock market experienced a super bull market with the Shanghai Stock Exchange Composite (hereinafter ‘SSE’) Index rising 2.5 times.[xl] However, three weeks after scaling new heights, the SSE Composite Index rapidly fell and trading activities were halted. Margin financing by the shadow banking sector and margin trading were two of the major reasons for the “equity bubble” burst.[xli]

Figure 3[xlii]

Figure 3 shows that the SSE Composite Index grew when margin loans were higher since large amounts were being infused into the share market to create a “speculative bubble.” The Chinese shadow lending sector enabled more aggressive borrowing  due to low margin rates. When investors withdrew their money from the market, the composite index began to fall, eventually leading to a market crash.[xliii] To prevent such a scenario in India, the RBI’s intervention was necessary.  

IV. Contemplating the Possible Implications of the Borrowing Cap

A. Optimizing the number of applications

The SBR place a ceiling limit on the NBFCs’ exposure to IPO financing, i.e., Rs. 1 crore per borrower. However, it does not prevent HNIs from approaching multiple NBFCs to borrow funds to bid for the same IPO. For example, X can approach two or more NBFCs to get a Rs.1 crore loan from each NBFC for the same IPO.[xliv] HNIs could try to optimize the number of applications by filing them through multiple accounts to increase the chances of allotment.[xlv] Furthermore, HNIs with sufficient funds to finance the margin amount can ask relatives or friends to borrow funds to get a higher allocation. For example, X has Rs. 2 crores. NBFCs usually ask for a margin of 1% on the loan amount. X can ask various individuals to borrow funds for IPO applications, thereby subscribing to IPOs through multiple accounts.

Though there exists a leeway to escape the ceiling limit, it is cumbersome in nature. There may be a slight possibility of an increase in applications, but regulatory norms would significantly reduce an individual’s 100x or 200x oversized bid in an IPO. 

B. Level Playing Field for Smaller NBFCs

With an increase in wealthy investors’ interest in IPO listing gains, the demand for IPO financing increased to Rs. 40,000-Rs. 50,000 crores per IPO.[xlvi] These investors approach large NBFCs for a loan amount that is 100 times more than their net worth to place oversized bids in IPOs. Large NBFCs raise funds from the money market at an interest rate of 4-5% for IPO financing, which includes huge funding costs. It is impossible for smaller NBFCs to raise funds from the money market considering the huge interest costs involved and their low credit rating.[xlvii] Since IPO funding is a high-risk leveraging area, the market is dominated by a few large players such as Bajaj Finance, IIFL, Aditya Birla Finance, and JM Financial.[xlviii]

However, the RBI’s new regulatory norm of imposing a ceiling limit would allow smaller NBFCs to arbitrage the opportunity by entering the Rs. 80,000 crores IPO financing market.[xlix] Since no NBFCs will be able to finance more than Rs. 1 crore, the need to finance oversized applications will be eradicated. Therefore, smaller NBFCs will be able to tap the market due to the reduced potential risk.

C. Preventing Overvaluation and Price Manipulation

NBFCs provide funds in excess of the actual amount sought to be raised by issuers through IPOs. Such disproportionate financing distorts the primary market by inflating demand.[l] The entire process of creating unrealistic demand leads to higher prices on listing day. Such a conclusion is supported by the RBI’s findings in its recent study on ‘The Phenomenon of Listing Returns in India: Some Exploration’ in its Annual Report 2020-21.[li] The report stated that high oversubscription rate is a driving factor in causing the decadal high average listing returns of 36 percent.[lii] These listing returns are not based on the growth, profitability, or fair valuation of the company rather, they are based on inflated demand. Thus, IPO financing causes overvaluation of the company at the time of the IPO issuance, which cannot be sustained in the long run.[liii] Taking this argument further, oversubscription by leveraged investors causes excessive price manipulation on listing day. They exit the market on listing day after making gains. Undue selling pressure causes a significant fall in the prices on listing day, thereby leaving long-term and retail investors in the lurch.

Since the new regulatory norm restricts excessive leveraging, undue leveraged selling by HNIs on listing day will reduce significantly.[liv] This will prevent price volatility and speculative selling as prices will not be artificially inflated on listing day. Hence, the borrowing cap could prevent overvaluation and ensure real price discovery on listing day. 

D. Promoting Alternative Investment Funds

The RBI norm to tighten capital requirements may incentivize HNIs to look for Alternative Investment Funds (hereinafter ‘AIFs’) as a mode of investment to chase higher gains. AIFs provide an opportunity to generate higher returns through customized investment.[lv] To promote HNIs’ investment in AIFs, SEBI has removed the minimum investment value of Rs. 1 crore required for investing in AIFs by accredited investors (generally HNIs) and eased other regulatory norms.[lvi] Restricting IPO financing for HNIs through the SBR coupled with relaxed regulatory norms for HNIs’ investment in AIFs encourages safer investments.

V. Suggestions and Conclusion

RBI’s borrowing cap is definitely a step forward towards restricting the use of IPO financing as a leveraging tool by HNIs who participate in IPOs solely to profit from listing day gains. However, a major drawback of the limit, is that it prevents genuine long-term investors in the NII category from securely borrowing a reasonable amount of funds exceeding Rs. 1 crore.[lvii] The IPO market would therefore, become less attractive to HNIs who are looking for long-term gains. To ensure the continuing presence of HNIs who are genuinely interested in the future prospects of a company, a suitable alternative ought to be looked into. One possible solution is to codify margin requirements for NBFCs.[lviii] According to RBI’s Notification on Banks’ Exposure to Capital Markets, the margin requirement for banks that lend for capital market operations including IPO financing, is 50%.[lix] Instead of introducing a defined cap of Rs. 1 crore on NBFCs lending for capital market operations, the RBI could increase margin requirements to 50% in the shadow banking sector. Such an approach was adopted by China after the 2015 stock market crash.[lx] Higher margin requirements would discourage HNIs who enter the market to capitalize on listing day gains from availing loans since they would have to stake larger sums of their money. Genuine investors, on the other hand, will be encouraged to invest in the primary market thereby bringing more stability to the management of companies’ affairs.

A more stringent approach that regulators could adopt is to introduce a lock-in period in the NII category similar to the lock-in requirements that exist for QIBs and anchor investors.[lxi] Such a move would deter investment from speculative investors looking for listing day gains thereby bringing stability to the primary market. In case the RBI chooses to retain the limit on NBFCs’ exposure to IPO financing, it can still ensure that the IPO market remains attractive to HNIs by creating an exception within the SBR for accredited investors.[lxii] Accredited investors are individuals who have an annual income of at least Rs. 2 crores, a net worth of Rs.7.5 crores, with 50% of such worth being financial assets, or annual income of at least Rs. 1 crore and minimum net worth of Rs. 5 crores out of which at least 50% must be in financial assets.[lxiii] The RBI should consider allowing NBFCs to lend more than the prescribed limit to accredited investors because they are more financially stable and will be able to repay loans. Such an exception has the potential to achieve the two-fold objective of preventing speculative investments and retaining genuine investors in the market while simultaneously reducing risks for the NBFC sector.   


[i] K.R. Srivats, 2021 best IPO year in India in the last 20 years: EY, Hindu BusinessLine (Dec. 23, 2021), https://www.thehindubusinessline.com/markets/stock-markets/2021-best-ipo-year-in-india-in-the-last-20-years-ey/article38023373.ece.

[ii] Rajesh Mascarenhas,  HNIs give large IPOs a miss, bet on smaller issues, The Economic Times (Dec. 07, 2021),  https://economictimes.indiatimes.com/markets/ipos/fpos/hnis-give-large-ipos-a-miss-bet-on-smaller-issues/articleshow/88133781.cms.

[iii]Securities and Exchange Board of India (Issue of Capital and Disclosure Requirements), 2018, Gazette of India Part III Section IV (Sept. 18, 2018) Regulation 2(jj) and 2(vv) [hereinafter ‘ICDR Regulations’].

[iv] Securities and Exchange Board of India, Consultation Paper on Review of Price Band and Book Building Framework for public issues, p.5 at ¶3.5 (Oct 4,2021), https://www.sebi.gov.in/reports-and-statistics/reports/oct-2021/consultation-paper-on-review-of-price-band-and-book-building-framework-for-public-issues-_53100.html  [hereinafter ‘Consultation Paper on Book Building’]

[v] Rajesh Mascarenhas, HNIs give IPOs a miss, bet on smaller issues, Economic Times (Dec. 07, 2021), https://economictimes.indiatimes.com/markets/ipos/fpos/hnis-give-large-ipos-a-miss-bet-on-smaller-issues/articleshow/88133781.cms.

[vi] Consultation Paper on Book Building, supra note 4, at p.5.

[vii] ICDR Regulations, supra note 3, Regulation 32.

[viii] Id., Regulation 32(4); Consultation Paper on Book Building, supra note 4, at p.3.

[ix] Id., Regulations 32(1) & 32(2).

[x] Id., Regulations 32(1) & 32(2).

[xi] Consultation Paper on Book Building, supra note 4, at p.4.  

[xii] Id., at p.6 at ¶3.6 noting that even applications worth Rs.75 lakhs were not allotted shares. 

[xiii] ICDR Regulations, supra note 3, Regulation 47(1).

[xiv] Vashishta Iyer, The secret to HNI IPO funding that the RBI just killed (Jan. 20, 2022), https://www.capitalmind.in/2022/01/how-does-hni-ipo-funding-work-systemic-risks/#:~:text=%5B4%3A35%5D%20IPO%20allocation,for%20a%20100X%20oversubscribed%20IPO.

[xv] ICDR Regulations, supra note 3, Regulation 49(4A). 

[xvi] Id., Regulation 49(4A).

[xvii] Id., Regulation 32(3A).

[xviii] Ajay Kumar KV, FAQs on IPO Financing (Nov. 24, 2021), https://vinodkothari.com/2021/11/faqs-on-ipo-financing/#:~:text=IPO%20funding%20is%20a%20short,2.

[xix] Reserve Bank of India, Master Circular on Exposure Norms for Banks (Jul 1,2015),  https://www.rbi.org.in/Scripts/BS_ViewMasCirculardetails.aspx?id=9875, at p.16 [hereinafter ‘Master Circular on Exposure Norms’].

[xx] Margin refers to the minimum amount paid by the investor for availing of the loan facility.

[xxi] Reserve Bank of India, Banks Exposure to Capital Markets – Rationalization of Norms (2006), https://rbi.org.in/scripts/NotificationUser.aspx?Id=3213&Mode=0, at p.4.

[xxii] Palak Shah & Badrinarayan K.S., IPO rush: Riding the margin financing wave, BusinessLine (Aug. 04, 2021), https://www.thehindubusinessline.com/markets/stock-markets/ipo-rush-riding-the-margin-financing-wave/article35731461.ece.

[xxiii] FE Bureau, NBFCs raise over Rs.42,000 crore via ultra-short-term CPs in one week to finance IPOs, Financial Express (Dec. 08, 2021), https://www.financialexpress.com/market/ipo-news/nbfcs-raise-over-rs-42000-crore-via-ultra-short-term-cps-in-one-week-to-finance-ipos/2384159/ [hereinafter ‘FE Bureau’].

[xxiv] Reserve Bank of India, Draft Guidelines on Issuance of Commercial Paper (CP), https://www.rbi.org.in/scripts/NotificationUser.aspx?Id=200&Mode=0

[xxv] Manish M. Suvarna, Record IPOs in FY22 push up commercial paper issuances by NBFCs, Financial Express (Feb. 16, 2022), https://www.financialexpress.com/industry/banking-finance/record-ipos-in-fy22-push-up-commercial-papers-issuances-by-nbfcs/2434985/.

[xxvi] FE Bureau, supra note 23.

[xxvii] Reserve Bank of India, Monetary Policy Report – October 2021, https://rbi.org.in/Scripts/PublicationsView.aspx?id=20647 at p.79.

[xxviii] Reserve Bank of India, Report on Trends and Progress of Banking in India, https://m.rbi.org.in/scripts/AnnualPublications.aspx?head=Trend%20and%20Progress%20of%20Banking%20in%20India, at p.141.

[xxix] Master Circular on Exposure Norms, supra note 19, at p.11.

[xxx] Ministry of Finance, Economic Survey 2019-20 Volume 1, https://www.indiabudget.gov.in/budget2020-21/economicsurvey/index.php at p.178 [hereinafter ‘Economic Survey 2019-20’];  Prathamesh Mulye, A timeline of the crises that brought India’s $370 billion shadow banking sector to its knees, Quartz India (June 03, 2020), https://qz.com/india/1860466/how-indias-nbfc-crisis-deepened-from-ilfs-defaults-to-covid-19/.

[xxxi] Economic Survey 2019-20, supra note 19, at p.185.

[xxxii] Id., at p.184.

[xxxiii] Id., at p.184.

[xxxiv] Id., at p.184.

[xxxv] Vasishta Iyer, supra note 14.

[xxxvi] PTI, HC restrains Ajanta Manufacturing from proceeding with public issue, Economic Times (May 02, 2008), https://economictimes.indiatimes.com/markets/ipos/fpos/hc-restrains-ajanta-manufacturing-from-proceeding-with-public-issue/articleshow/3005065.cms?from=mdr.

[xxxvii] Ajanta Manufacturing Co. Ltd. v. Ajanta India Ltd., 2008 (38) PTC 83 (Del) at ¶8.  

[xxxviii] BS Reporter, Oyo IPO: Delhi HC rejects Zostel’s petition for stake in firm; Business Standard (Feb. 15, 2022), https://www.business-standard.com/article/companies/oyo-gets-breather-after-delhi-hc-rejects-zostels-petition-for-stake-in-firm-122021500145_1.html;

[xxxix] Reserve Bank of India, Statement on Development and Regulatory Policies (Dec 4,2020), https://www.rbi.org.in/Scripts/BS_PressReleaseDisplay.aspx?prid=50748 at p.1 & p.3.

[xl] Lerong Lu & Longjie Lu, Unveiling China’s Stock Market Bubble: Margin Financing, the Leveraged Bull and Governmental Responses, 34 Journal of International Banking Law and Regulation 147 (2017).

[xli] Id., at pp.151-156.  

[xlii] Id. at p.154.

[xliii] Id.; see also, Emily Lee, Shadow Banking System in China after the Global Financial Crisis: Why Shadow Banks Can Distort the Capital Market Order, 3 Peking U. L.J. 361 (2015).

[xliv] Ajay Vaishnav, Explained: RBI rule limiting IPO funding by NBFCs to Rs 1 crore per borrower and the implications,  CNBC TV (Oct. 25, 2021), https://www.cnbctv18.com/market/stocks/explained-rbi-rule-limiting-ipo-funding-by-nbfcs-to-rs-1-crore-per-borrower-and-the-implications-11219302.htm

[xlv] BQ Desk, New IPO Financing Limit Will ‘Level The Playing Field’, Say Experts, Bloomberg (Oct. 24, 2021),
https://www.bloombergquint.com/markets/new-ipo-financing-limit-will-level-the-playing-field-say-experts.

[xlvi] Rajesh Mascarenhas & Arijit Barman, Regulatory eye on NBFC financing of HNIs’ IPO appetite, The Economic Times (Jan. 26, 2021), https://economictimes.indiatimes.com/markets/stocks/news/regulatory-eye-on-nbfc-financing-of-hnis-ipo-appetite/articleshow/80461267.cms?from=mdr.

[xlvii] Saikat Das, Lending caps on NBFCs may offer big opportunities to small players, The Economic Times (Oct. 25, 2021),
https://economictimes.indiatimes.com/industry/banking/finance/lending-caps-on-nbfcs-may-offer-big-opportunities-to-small-players/articleshow/87240432.cms.

[xlviii] Id.

[xlix] Id.; see also, Soumyajit Niyogi, IPO Financing to Pick-up in Interim; Opportunity to Get Broad-Based Post Implementation of Norms, India Ratings and Research Group (Oct. 28, 2021), https://www.indiaratings.co.in/PressRelease?pressReleaseID=56559&title=-IPO-Financing-to-Pick-up-in-Interim%3B-Opportunity-to-Get-Broad-Based-Post-Implementation-of-Norms-.

[l] Standing Technical Committee of RBI and SEBI, Bank Financing of Equities (2000) https://www.rbi.org.in/Scripts/PublicationReportDetails.aspx?ID=183.

[li]Reserve Bank of India, Economic Review (2020-21), https://rbidocs.rbi.org.in/rdocs/AnnualReport/PDFs/IIECONOMICREVIEW650084A9F3494152939D99449E63D040.PDF. at pp.71-72.

[lii] Id., at pp.71-72.

[liii]New RBI proposal for NBFC funding in IPOs to help primary issues in restoring sanity- Opinion, DT NEXT (Jan. 26, 2021),

https://www.dtnext.in/News/Citizen/2021/01/26232258/1273051/New-RBI-proposal-for-NBFC-funding-in-IPOs-to-help-.vpf.

[liv] BQ Desk, New IPO Financing Limit Will ‘Level The Playing Field’, Say, Experts, Bloomberg Quint (Oct. 24, 2021),
https://www.bloombergquint.com/markets/new-ipo-financing-limit-will-level-the-playing-field-say-experts.

[lv] Amitava Chakrabarty, What are Alternative Investment Funds? Should HNIs invest in AIF?, Financial Express (July 2, 2021),  

https://www.financialexpress.com/money/what-are-alternative-investment-funds-should-hnis-invest-in-aif/2282521/.

[lvi] Securities and Exchange Board of India (Alternative Investment Funds) (Third Amendment) Regulations, 2021, Gazette of India Part III Section IV (Aug. 3, 2021) [hereinafter ‘AIF Regulations’], Regulation 5.

[lvii] Jayant Thakur, IPO Financing|Its colourful past, and RBI’s tightening grip, Money Control (Jan. 12, 2022), https://www.moneycontrol.com/news/opinion/ipo-financing-its-colourful-past-and-rbis-tightening-grip-7927451.html.

[lviii] Id.

[lix] Supra note 21.

[lx] Lerong Lu & Longjie Lu, supra note 40, at p.158.

[lxi] Securities and Exchange Board of India, Consultation Paper on Review of certain aspects of Public issue framework under SEBI (Issue of Capital and Disclosure Requirements) Regulations, 2018, https://www.sebi.gov.in/reports-and-statistics/reports/nov-2021/consultation-paper-on-review-of-certain-aspects-of-public-issue-framework-under-sebi-issue-of-capital-and-disclosure-requirements-regulations-2018_53983.html p. 5 at ¶4.1.

[lxii] Thakur, supra note 57.

[lxiii] AIF Regulations, supra note 56, Regulation 2(1) (ab).

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