(RTTNews) - Reserve Bank of India or RBI released the draft guidelines on the issuance of non-convertible debentures or NCDs of maturity less than one year. The guidelines also cover NCDs with original maturity of more than one year with optionality attached to it, which can be exercised within a year from the date of issue.

NCDs mean secured, negotiable money market instruments with original maturity of less than one year issued by corporates, including NBFCs, to meet their short term funding requirements, by way of private placement with investors.

It may be noted that presently, issuance of the NCDs with original maturity of less than one year is not regulated either by the Securities Exchange Board of India or SEBI or the Govt. of India. Often, these instruments are issued with call/put options embedded in it, which impart a demand-liability like character to these instruments.

Maturity

The guideline states that the NCDs shall not be issued for maturities of less than 90 days from the date of issue, and the minimum denomination by a single investor has been fixed at Rs.5 lakh.

The exercise date of option (put/call), if any, attached to the NCDs shall not fall within 90 days period from the date of issue. The maturity date of the NCD shall co-terminate with the date up to which the credit rating of the issuer is valid, RBI said.

Denominations

The guidelines say that NCDs may be issued in denominations of Rs.5 lakh or multiples thereof. However, the amount invested by a single investor should not be less than a face value of Rs.5 lakh. NCDs will carry a coupon rate as determined by the issuer.

Eligible Issuers

On the eligibility criterion, the central bank has fixed Rs.4 crore as the tangible net worth as per the latest audited balance sheet of any corporate to issue such NCDs.

Corporates having sanctioned working capital limit by banks or all-India financial institutions and borrowal account of the company classified as a standard asset by the financing bank or institution will also be allowed to participate in the same.

Investment in NCD

NCDs may be issued to and held by individuals, banking companies, primary dealers (PDs) other corporate bodies registered or incorporated in India and unincorporated bodies, non-resident Indians (NRIs) and foreign institutional investors (FIIs). However, the investment by FIIs shall be within the limits set for their investments by the SEBI.

Preference for Dematerialisation

While option is available to both issuers and subscribers to issue/hold NCDs in dematerialised or physical form, issuers and subscribers should be encouraged to issue/hold NCDs in dematerialised form. However, banks, FIs and PDs are required to make fresh investments in NCDs only in dematerialised form, RBI added.

Rating Requirement

An eligible corporate intending to issue NCDs shall obtain credit rating from any agencies, such as CRISIL, ICRA, CARE, FITCH or such other credit rating agencies as may be specified by the RBI from time to time. The rating so obtained is current and has not fallen due for review.

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