The Reserve Bank of India, on Wednesday, asked primary dealers (PDs) to phase out Tier III bonds, a short-term fund raising tool made available to such companies for meeting risk.

Primary dealers (PDs) are entities which deal in government securities.

It had been decided to phase out short-term subordinated debt (Tier-III bonds) as an eligible source of capital for standalone primary dealers (PDs), the apex bank said.

Tier-III capital was issued by standalone PDs to meet solely the market risk capital charge.

Accordingly, it said, PDs should not raise fresh funds through issuance of Tier-III bonds with effect from July 1.

However, PDs, which are already having Tier-III capital, might continue to recognise it as an eligible capital till the maturity of such subordinated debts, it added.