Rights Issues Make a Comeback

How SEBI’s New Rules Are Fueling a Capital-Raising Boom

Rights issues are back in the spotlight as SEBI’s new rules simplify the process. Find out how this change is helping firms raise capital faster.

Imagine you’re a business owner, and you need cash to expand—but you don’t want to lose control of your company or pay high interest. What if you could raise funds from the very people who already believe in your business? That’s what a rights issue does—and thanks to a recent rule change, this once-sidelined method is suddenly hot again.

What Exactly Is a Rights Issue?

A rights issue allows listed companies to raise money by offering new shares to existing shareholders, usually at a discount. It’s like offering your loyal investors the first chance to buy more ownership before opening it up to outsiders.Let’s say you own 10% of a company. If they issue more shares and you don’t buy in, your stake gets diluted. But with rights issues, you can buy more and maintain your share—often at a bargain price.

Why It Was Ignored… Until Now

Rights issues used to be like waiting for a train in the middle of nowhere. The process was slow—up to 317 working days, full of paperwork and delays. That made companies turn to faster, flashier options like private placements or bank loans.

But in April 2025, SEBI (India’s stock market regulator) made a sharp move. It cut the timeline to just 23 working days. That’s like switching from snail mail to WhatsApp.

Here’s what changed:

• Faster approval and allotment
• A seven-day subscription window
• Easier trading of rights entitlements
• Simplified disclosures

The result? A rights issue is now faster and cheaper, without giving away control to new investors.

Numbers Don’t Lie

In May 2025, companies raised ₹4,188 crore through rights issues—the highest in over a year. Major players like Mahindra & Mahindra Financial Services (₹2,996 crore) and Lloyds Engineering (₹987 crore) led the charge.

And it’s not just a one-month blip:

• January 2024: ₹4,198 crore
• April 2025: ₹799 crore
• May 2025: ₹4,188 crore (with 4 issues opened)

We’re seeing both a spike in value and a rise in the number of companies opting for rights issues.

Why It Makes Sense Economically

From a microeconomics angle, think of rights issues as a way to lower transaction costs and avoid agency problems. Instead of borrowing from banks (which introduces creditor control), companies stick with shareholders who already understand their risk.

There’s also a game theory element here. By offering discounted shares to current investors, companies incentivize participation—and because shareholders don’t want to lose their stake, they often buy in.

On a macroeconomic level, when rights issues become easier, capital flows more freely. Companies can raise money to invest, expand, or innovate—without increasing debt. That’s especially helpful when interest rates are high or when markets are cautious.

What’s in It for Young Investors?

If you’re a young professional or a retail investor, rights issues offer:

• Discounted shares in companies you already trust
• A chance to increase your stake before outsiders do
• Liquidity, since rights entitlements can often be traded

But there’s a catch. Not all rights issues are golden. If a company is struggling, the rights offer may be a red flag. So always check why the funds are being raised.

Final Thoughts

Rights issues have gone from being the forgotten stepchild of capital markets to the new favorite. Thanks to SEBI’s smart rulebook changes, companies can now raise money faster, with less red tape—and investors can grab more value along the way.

If you’re a business owner or a finance-savvy millennial, keep an eye on this trend. Whether you’re raising capital or investing it, rights issues might just be your best route forward

Why States Want More Tax Share

States demand a bigger share of central taxes to boost local development. Here’s why it’s becoming a loud economic and political debate.

Rising Voices, Growing Needs

Imagine running a household where 59% of your salary is controlled by someone else. You ask for money, but they decide how much you get. That’s exactly how Indian states feel when it comes to tax revenue distribution.

Currently, the Indian government shares 41% of divisible tax revenue with states. But now, there’s growing demand—led by the BJP-ruled Uttar Pradesh and supported by several others—to increase it to 50%.

Why this sudden clamor? Let’s break it down.

The Economics Behind the Demand

Under India’s federal structure, the Centre collects most of the taxes—like income tax and GST—and then distributes a portion to the states. The idea is rooted in the principle of fiscal federalism, where resources are shared to meet the specific needs of regions.

However, states argue that their expenditure responsibilities—healthcare, education, infrastructure—have grown much faster than their revenue streams.

Here’s where the imbalance lies:

• Centre gets 59% of the tax pool
• States get 41%, but are responsible for delivering most public services

This mismatch often leads to delays in welfare schemes, patchy roads, underfunded schools, and even salary delays for local government employees.

More States, More Voices

Out of 28 Indian states, 21 have backed this push for a larger share. They’re not just asking for more money—they’re asking for more autonomy.

Some key demands include:

• Increasing states’ share from 41% to 50%
• Earmarking 10% of tax revenue for the 8 Northeastern states
• Compensation for forest cover conservation
• Special funds for states with difficult terrains or insurgency

Interestingly, these demands come from both BJP-ruled and Opposition-ruled states, showing that this issue transcends party lines.

The Hidden Tax: Surcharges and Cesses

Another major grievance is the growing use of surcharges and cesses by the Centre. These are taxes collected outside the divisible pool—meaning states don’t get a share.

For instance:

• Health cess
• Infrastructure cess
• Education cess

These now make up over 18% of the Centre’s gross tax revenue. That’s like collecting rent from tenants but not sharing it with your business partner who owns 40% of the building.

What This Means for You

If you’re a young professional or a business owner, you might wonder: how does this affect me?

Let’s say you’re an entrepreneur in Assam. If your state had a higher share of tax revenue:

• Better roads could cut your logistics costs
• Local grants could fund your start-up
• Skilled labor programs could improve workforce quality

Or imagine you’re a software engineer from Mizoram. With more funds, your state might invest in broadband infrastructure, helping your hometown join the digital economy.

In economic terms, this is about resource allocation efficiency. When local governments—who understand local needs better—get more money, they can invest it more productively. That leads to higher marginal returns on every rupee spent.

The Centre’s View: A Balancing Act

Of course, the Centre has its own responsibilities—defense, national highways, international diplomacy. It also needs to redistribute resources to poorer states through central schemes.

Too large a share for states may weaken the Centre’s ability to function effectively, especially in times of crisis like a pandemic or war.

So the real debate is not just about percentages. It’s about finding the right balance between central coordination and state-level flexibility.

Looking Ahead

The 16th Finance Commission, led by Arvind Panagariya, is reviewing these demands and will submit its recommendations by October 31. Whether or not the 50% mark is granted, one thing is clear—the call for fiscal decentralization is growing louder.

In the long run, empowering states fiscally may lead to a more responsive, competitive, and inclusive economy.

And that’s something worth taxing our minds over.

Banks May Cut Interest Rates Again

 

Why Your Savings Account Might Earn Less Soon

Meta Description:
Indian banks may cut deposit interest rates by 25–50 bps to manage surplus liquidity and protect margins amid RBI’s recent repo rate action.

If you're someone who parks money in a savings account, here’s something you should pay attention to. Banks across India are likely to cut savings and term deposit rates again—and this time, the reason has a lot to do with too much money chasing too few returns.

Let’s break down what’s going on, why this matters to your money, and what economic forces are in play.

What’s Triggering These Rate Cuts?

It starts with the RBI’s recent decision to cut the repo rate by 50 basis points (bps). The repo rate is the interest rate at which commercial banks borrow money from the central bank. When the RBI cuts this rate, borrowing becomes cheaper. The goal? To stimulate economic activity.

But when banks can borrow at cheaper rates, they don’t need to attract as much money from the public through savings and deposits. So they start offering lower interest rates on these products. It’s economics 101—supply of funds has gone up, so the price of borrowing (or the interest rate you earn) comes down.

Here’s a quick analogy:

Imagine you’re running a water tank supply business. Suddenly, it rains non-stop for a month. With everyone’s tanks already full, you’ll likely reduce your rates—or risk not getting any customers at all. Banks are in a similar spot with money right now.

Surplus Liquidity: Too Much Cash in the System

The real driver here is surplus liquidity—banks are flush with funds. Why? Several factors:

• RBI has pumped money into the economy via repo cuts and open market operations (OMOs).

• Cash Reserve Ratio (CRR) has been reduced in stages to free up funds for lending.

• Demand for credit is recovering but still lags behind deposit inflows.

A key concept from macroeconomics explains this: in a liquidity trap, even when central banks push more money into the system, it doesn’t always result in higher lending or economic activity. People either hold on to their money or banks don’t find enough viable lending opportunities.

So, to protect their net interest margins (NIMs)—the difference between what banks earn from loans and pay on deposits—banks will likely lower deposit rates again.

How Much Could Rates Fall?

The savings account rates could drop by another 25–50 basis points (0.25–0.50%). This is after an average decline of 27 bps since February.

This may not sound like a lot, but for those relying on fixed income—like retirees or conservative investors—it makes a real difference.

For instance, if you had ₹10 lakh in a fixed deposit earning 6% annually, a 50 bps cut drops your return to 5.5%, reducing your annual earnings by ₹5,000.

What Does This Mean for You?

Here’s what young professionals and business owners should consider:

• Reevaluate where you park your idle money. Traditional savings may no longer offer meaningful returns.

• Look for smarter parking options like liquid mutual funds or short-term debt funds, which may still offer better yields.

• Businesses relying on deposits for working capital should plan for lower interest income.

On the flip side, borrowers stand to benefit. As the transmission of the repo cut improves, you might get better loan rates—especially in sectors like MSMEs and housing.

Faster Transmission Is Finally Happening

Historically, the transmission of RBI rate cuts into actual lending and deposit rates has been slow. But things are changing. According to RBI Governor Sanjay Malhotra, the transmission of repo rate cuts is now faster than in previous economic cycles.

This is especially evident in the short-term debt market. For example:

• Bank bond yields have fallen by over 50 bps.

• Standing loan rates have dropped by up to 17 bps.

• New deposits are now being repriced within months, not years.

Final Thoughts

The next time you notice your bank updating its interest rate, know that it's not just an arbitrary change. It’s the result of a complex interplay of liquidity, inflation expectations, monetary policy, and economic signals.

We’re in a cycle where the economy is being nudged toward growth through lower interest rates. While this supports borrowing and investment, savers will need to adapt.

In economic terms, this is a classic example of how monetary policy tools like repo rates impact the broader economy through the transmission mechanism. It's the chain reaction that begins with the central bank—and ends in your savings account.

Stay alert, diversify your investments, and don’t let your money sit idle when it could be working harder elsewhere.

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