Issuance of Non-Convertible Debentures (R B I) Directions,

2010
The Reserve Bank of India, has given the final guidelines to the
agencies dealing in securities and money market instruments
regarding issuance of Non-Convertible Debentures (NCDs of original
or initial maturity u! to one year"
1. NCDs are defined as
i" Non-Convertible Debenture (NCD means a debt instrument
issued by a corporate (including NBFCs) with original or initial
maturity up to one year and issued by way of private placement;
ii" Corporate means a company as defined in the Companies ct!
"#$% (including NBFCs) and a corporation established by an act
of any &egislature
2. wo can issue NCDs
# cor!orate shall be eligible to issue NCDs if it fulfills the follo$ing
criteria, namely,
i" the cor!orate has a tangible net $orth of not less than Rs"%
crore, as !er the latest audited balance sheet&
ii" the cor!orate has been sanctioned $orking ca!ital limit or term
loan by bank's or all-India financial institution's& and
iii" the borro$al account of the cor!orate is classified as a (tandard
#sset by the financing bank's or institution's"
!. Ratin" Re#uire$ent
#n eligible cor!orate intending to issue NCDs shall obtain credit rating
for issuance of the NCDs from one of the rating agencies, vi)", the
Credit Rating Information (ervices of India *td" (CRI(I* or the
Investment Information and Credit Rating #gency of India *td" (ICR#
or the Credit #nalysis and Research *td" (C#R+ or the ,ITC- Ratings
India .vt" *td or such other agencies registered $ith (ecurities and
+/change Board of India ((+BI or such other credit rating agencies as
may be s!ecified by the Reserve Bank of India from time to time, for
the !ur!ose"
The minimum credit rating shall be .-0 of CRI(I* or such e1uivalent
rating by other agencies"
The Cor!orate shall ensure at the time of issuance of NCDs that the
rating so obtained is current and has not fallen due for revie$"
%. &aturit'
NCDs shall not be issued for maturities of less than 23 days or beyond
validity !eriod of the credit rating of instrument from the date of issue"
The e/ercise date of o!tion (!ut'call, if any, attached to the NCDs
shall not fall $ithin the !eriod of 23 days from the date of issue"
(. Deno$ination
NCDs may be issued in denominations $ith a minimum of Rs"4 lacs
(face value and in multi!les of Rs"5 lac"
). *i$its and te +$ount of Issue of NCDs
The aggregate amount of NCDs issued by a cor!orate shall be $ithin
such limit as may be a!!roved by the Board of Directors of the
cor!orate or the 1uantum indicated by the Credit Rating #gency for
the rating granted, $hichever is lo$er"
The total amount of NCDs !ro!osed to be issued shall be com!leted
$ithin a !eriod of t$o $eeks from the date on $hich the cor!orate
o!ens the issue for subscri!tion"
,. -rocedure for Issuance
The cor!orate shall disclose to the !ros!ective investors, its financial
!osition as !er the standard market !ractice"
The auditors of the cor!orate shall certify to the investors that all the
eligibility conditions sti!ulated by RBI are com!lied $ith"
The re1uirements of all the !rovisions of the Com!anies #ct, 5246
and the (ecurities and +/change Board of India (Issue and *isting of
Debt (ecurities Regulations, 0337, or any other la$, that may be
a!!licable, shall be com!lied $ith by the cor!orate"
The Debenture Certificate shall be issued $ithin the !eriod !rescribed
in the Com!anies #ct, 5246 or any other la$ as in force at the time of
issuance"
NCDs may be issued at face value carrying a cou!on rate or at a
discount to face value as )ero cou!on instruments as determined by
the cor!orate"
.. Debenture /rustee
+very cor!orate issuing NCDs shall a!!oint a Debenture Trustee (DT
for each issuance of the NCDs"
#ny entity that is registered as a DT $ith the (+BI under (+BI
(Debenture Trustees Regulations, 5228, shall be eligible to act as DT
for issue of the NCDs only sub9ect to com!liance $ith the re1uirement
of these Directions"
The DT shall submit to the Reserve Bank of India such information as
re1uired by it from time to time"
0. Invest$ent in NCD
all resident investors and unincor!orated bodies, Non-Resident Indians
(NRIs and ,oreign Institutional Investors (,IIs are eligible to invest
in NCDs"
Investments in NCDs by Banks'.Ds shall be sub9ect to the a!!roval of
the res!ective regulators"
Investments by the ,IIs shall be $ithin such limits as may be set forth
in this regard from time to time by the (+BI"
10. -reference for De$aterialisation
:hile o!tion is available to both issuers and subscribers to issue'hold
NCDs in dematerialised or !hysical form, they are encouraged to
issue' hold NCDs in dematerialised form" -o$ever, banks, ,Is and .Ds
are re1uired to make fresh investments in NCDs only in dematerialised
form"
11. Roles and Res1onsibilities of debenture trustees and
ratin" a"encies
Debenture /rustees
The roles, res!onsibilities, duties and functions of the DTs shall be
guided by these regulations, the (ecurities and +/change Board of
India (Debenture Trustees Regulations,5228, the trust deed and offer
document"
The DTs shall re!ort, $ithin three days from the date of com!letion of
the issue, the issuance details to the Chief ;eneral <anager, ,inancial
<arkets De!artment, Reserve Bank of India, Central =ffice, ,ort,
<umbai-%33335"
DTs should submit to the Reserve Bank of India (on a 1uarterly basis
a re!ort on the outstanding amount of NCDs of maturity u! to year"
The DTs are re1uired to re!ort immediately, on occurrence, full
!articulars of defaults in re!ayment of NCDs to the ,inancial <arkets
De!artment, Reserve Bank of India"
Credit Ratin" +"encies (CR+s)
Code of Conduct !rescribed by the (+BI for the CR#s for undertaking
rating of ca!ital market instruments shall be a!!licable to them (CR#s
for rating the NCDs"
The CR# shall have the discretion to determine the validity !eriod of
the rating de!ending u!on its !erce!tion about the strength of the
issuer" #ccordingly, CR# shall, at the time of rating, clearly indicate
the date $hen the rating is due for revie$"
:hile the CR#s may decide the validity !eriod of credit rating, they
shall closely monitor the rating assigned to cor!orates vis->-vis their
track record at regular intervals and make their revision in the ratings
!ublic through their !ublications and $ebsite"
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(This u!date may be useful for both @#IIB (!a!er 5 and Treasury
<anagement !a!er"
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R4IN;45/4D.
#s !er e/tant instructions banks are re1uired not to levy any !enalty
in case of de!osits closed before maturity !rovided the same are
reinvested $ith the same bank for a !eriod e/ceeding the une/!ired
!eriod of the earlier de!osit"
Recently RBI had changed the guidelines and left this to the discretion
of the individual banks taking into account their #sset liability
<anagement considerations"
Re1o in Cor1orate Debt 5ecurities (R BI) Directions, 2010
RBI had !ermitted $ith effect from <arch 35, 0353 re!o in Cor!orate
Debt (ecurities"
2. Definitions
a" ACor1orate Debt 5ecurit'B means non-convertible debt
securities, $hich create or ackno$ledge indebtedness, including
debentures, bonds and such other securities of a com!any or a
body cor!orate constituted by or under a Central or (tate #ct,
$hether constituting a charge on the assets of the com!any or
body cor!orate or not, but does not include debt securities
issued by ;overnment or such other !ersons as may be s!ecified
by the Reserve Bank, security recei!ts and securiti)ed debt
instrumentsC
b" A5ecurit' Recei1tsB means a security as defined in clause ()g
of section 0 of the (ecuritisation and Reconstruction of ,inancial
#ssets and +nforcement of (ecurity Interest #ct, 0330 (4% of
0330
c" A5ecuriti<ed debt instru$entB means securities of the nature
referred to in sub-clause (i"e" of clause (h of section 0 of the
(ecurities Contracts (Regulation #ct, 5246(%0 of 5246"
!. 4li"ible securities for re1o in Cor1orate Debt 5ecurities
a" =nly listed cor!orate debt securities $hich are rated A##B or
above by the rating agencies, that are held in the security
account of the re!o seller, in demat form, shall be eligible
!rovided that Commercial .a!ers (C.s, Certificates of De!osit
(CDs and other instruments including Non-Convertible
Debentures (NCDs of less than one year of original maturity,
shall not be eligible securities for undertaking re!o"
%. 4li"ible -artici1ants
The follo$ing entities shall be eligible to undertake re!o transactions in
cor!orate debt securitiesD
a" #ny scheduled commercial bank e/cluding RRBs and *#Bs&
b" #ny .rimary Dealer authorised by the Reserve Bank of
India&
c" #ny non-banking financial com!any registered $ith the
Reserve Bank of India (other than ;overnment com!anies
as defined in section 65E of the Com!anies #ct, 5246&
d" #ll-India ,inancial Institutions, namely, +/im Bank,
N#B#RD, N-B and (IDBI&
e" =ther regulated entities, sub9ect to the a!!roval of the
regulators concerned, vi)",
i" #ny mutual fund registered $ith the (ecurities
and +/change Board of India&
ii" #ny housing finance com!any registered $ith
the National -ousing Bank& and
iii" #ny insurance com!any registered $ith the
Insurance Regulatory and Develo!ment
#uthority
f" #ny other entity s!ecifically !ermitted by the Reserve Bank
(. /enor
Re!os in cor!orate debt securities shall be for a minimum !eriod of
one day and a ma/imum !eriod of one year"
). /radin"
.artici!ants shall enter into re!o transactions in cor!orate debt
securities in the =TC market.
,. Re1ortin" of /rades
a" #ll re!o trades shall be re!orted $ithin 54 minutes of the
trade on the ,I<<D# re!orting !latform"
b" The trades shall also be re!orted to any of the clearing
houses of the e/changes for clearing and settlement"
.. 5ettle$ent of trades
a" #ll re!o trades in cor!orate debt securities shall settle
either on a TF5 basis or a TF0 basis under Dv. I (gross
basis frame$ork"
b" Re!o transactions in cor!orate debt securities shall settle
in the same manner as outright =TC trades in cor!orate
debt securities"
c" =n the date of reversal of re!o trades, the clearing houses
shall com!ute the obligations of the !arties and facilitate
settlement on Dv. basis"
0. -roibition on sale of re1oed securit'
The security ac1uired under re!o shall not be sold by the re!o buyer
(lender of the funds during the !eriod of re!o"
10. 2aircut
a" # haircut of 04G (or higher as maybe decided by the
!artici!ants de!ending on the term of the re!o shall be
a!!licable on the market value of the cor!orate debt security
!revailing on the date of trade of 5st leg"
b" .artici!ants may refer to the rating-haircut matri/ that may be
!ublished by the ,i/ed Income <oney <arket and Derivatives
#ssociation of India (,I<<D#, to determine the a!!ro!riate
haircut"
11. ;aluation
,or arriving at the market value of the cor!orate debt security, the
!artici!ants undertaking re!o in cor!orate bonds may refer to the
credit s!reads !ublished by the ,I<<D#"
12. Ca1ital +de#uac'
The re!o transactions in cor!orate debt securities shall attract ca!ital
charge"
1!. Disclosure
The details of cor!orate debt securities lent or ac1uired under re!o or
reverse re!o transactions is re1uired to be disclosed in the HNotes on
#ccountsC to the Balance (heet"
1%. +ccountin"
The re!o transactions in cor!orate debt securities shall be accounted
as !er the revised guidelines on uniform accounting for re!o'reverse
re!o transactions in ;overnment securities, $hich is e/!ected to be
issued se!arately"
1(. Co$1utation of CRR=5*R > borrowin" li$it
a" The amount borro$ed by a bank through re!o shall be reckoned
as !art of its Demand and Time *iabilities (DT* and the same
shall attract CRR'(*R "
b" The borro$ings of a bank through re!o in cor!orate bonds shall
be reckoned as its liabilities for reserve re1uirement and, to the
e/tent these liabilities are to the banking system, they shall be
netted as !er clause (d of the e/!lanation under section %0(5
of the RBI #ct, 528%" (uch borro$ings shall, ho$ever, be sub9ect
to the !rudential limits for inter-bank liabilities"
1). Docu$entation
The !artici!ants shall enter into bilateral <aster Re!o #greement as
!er the documentation finali)ed by the ,I<<D#"
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(This u!date $ill be useful for the candidates $ho are a!!earing for
Treasury management sub9ect"