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 up 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 Act,

1956 (including NBFCs) and a corporation established by an act
of any Legislature

2. who can issue NCDs

A corporate shall be eligible to issue NCDs if it fulfills the following
criteria, namely,
i.

the corporate has a tangible net worth of not less than Rs.4
crore, as per the latest audited balance sheet;

ii.

the corporate has been sanctioned working capital limit or term

loan by bank/s or all-India financial institution/s; and

iii.

the borrowal account of the corporate is classified as a Standard

Asset by the financing bank/s or institution/s.

3. Rating Requirement
An eligible corporate intending to issue NCDs shall obtain credit rating
for issuance of the NCDs from one of the rating agencies, viz., the
Credit Rating Information Services of India Ltd. (CRISIL) or the
Investment Information and Credit Rating Agency of India Ltd. (ICRA)
or the Credit Analysis and Research Ltd. (CARE) or the FITCH Ratings
India Pvt. Ltd or such other agencies registered with Securities and
Exchange Board of India (SEBI) or such other credit rating agencies as
may be specified by the Reserve Bank of India from time to time, for
the purpose.

The minimum credit rating shall be P-2 of CRISIL or such equivalent

rating by other agencies.
The Corporate shall ensure at the time of issuance of NCDs that the
rating so obtained is current and has not fallen due for review.
4. Maturity
NCDs shall not be issued for maturities of less than 90 days or beyond
validity period of the credit rating of instrument from the date of issue.
The exercise date of option (put/call), if any, attached to the NCDs
shall not fall within the period of 90 days from the date of issue.
5. Denomination
NCDs may be issued in denominations with a minimum of Rs.5 lacs
(face value) and in multiples of Rs.1 lac.
6. Limits and the Amount of Issue of NCDs
The aggregate amount of NCDs issued by a corporate shall be within
such limit as may be approved by the Board of Directors of the
corporate or the quantum indicated by the Credit Rating Agency for
the rating granted, whichever is lower.
The total amount of NCDs proposed to be issued shall be completed
within a period of two weeks from the date on which the corporate
opens the issue for subscription.
7. Procedure for Issuance
The corporate shall disclose to the prospective investors, its financial
position as per the standard market practice.
The auditors of the corporate shall certify to the investors that all the
eligibility conditions stipulated by RBI are complied with.
The requirements of all the provisions of the Companies Act, 1956
and the Securities and Exchange Board of India (Issue and Listing of
Debt Securities) Regulations, 2008, or any other law, that may be
applicable, shall be complied with by the corporate.
The Debenture Certificate shall be issued within the period prescribed

in the Companies Act, 1956 or any other law as in force at the time of
issuance.
NCDs may be issued at face value carrying a coupon rate or at a
discount to face value as zero coupon instruments as determined by
the corporate.
8. Debenture Trustee
Every corporate issuing NCDs shall appoint a Debenture Trustee (DT)
for each issuance of the NCDs.
Any entity that is registered as a DT with the SEBI under SEBI
(Debenture Trustees) Regulations, 1993, shall be eligible to act as DT
for issue of the NCDs only subject to compliance with the requirement
of these Directions.
The DT shall submit to the Reserve Bank of India such information as
required by it from time to time.
9. Investment in NCD
all resident investors and unincorporated bodies, Non-Resident Indians
(NRIs) and Foreign Institutional Investors (FIIs) are eligible to invest
in NCDs.
Investments in NCDs by Banks/PDs shall be subject to the approval of
the respective regulators.
Investments by the FIIs shall be within such limits as may be set forth
in this regard from time to time by the SEBI.
10. Preference for Dematerialisation
While option is available to both issuers and subscribers to issue/hold
NCDs in dematerialised or physical form, they are 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.
11. Roles and Responsibilities of debenture trustees and
rating agencies

Debenture Trustees
The roles, responsibilities, duties and functions of the DTs shall be
guided by these regulations, the Securities and Exchange Board of
India (Debenture Trustees) Regulations,1993, the trust deed and offer
document.
The DTs shall report, within three days from the date of completion of
the issue, the issuance details to the Chief General Manager, Financial
Markets Department, Reserve Bank of India, Central Office, Fort,
Mumbai-400001.
DTs should submit to the Reserve Bank of India (on a quarterly basis)
a report on the outstanding amount of NCDs of maturity up to year.
The DTs are required to report immediately, on occurrence, full
particulars of defaults in repayment of NCDs to the Financial Markets
Department, Reserve Bank of India.
Credit Rating Agencies (CRAs)
Code of Conduct prescribed by the SEBI for the CRAs for undertaking
rating of capital market instruments shall be applicable to them (CRAs)
for rating the NCDs.
The CRA shall have the discretion to determine the validity period of
the rating depending upon its perception about the strength of the
issuer. Accordingly, CRA shall, at the time of rating, clearly indicate the
date when the rating is due for review.
While the CRAs may decide the validity period of credit rating, they
shall closely monitor the rating assigned to corporates vis--vis their
track record at regular intervals and make their revision in the ratings
public through their publications and website.
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(This update may be useful for both JAIIB (paper 1) and Treasury
Management paper).

CHANGES IN GUDIELINES REGARDING PAYMENT OF INTEREST

ON DEPOSITS CLOSED BEFORE MATURITY BUT WHICH ARE
REINVESTED.

As per extant instructions banks are required not to levy any penalty
in case of deposits closed before maturity provided the same are
reinvested with the same bank for a period exceeding the unexpired
period of the earlier deposit.
Recently RBI had changed the guidelines and left this to the discretion
of the individual banks taking into account their Asset liability
Management considerations.

Repo in Corporate Debt Securities (R BI) Directions, 2010

RBI had permitted with effect from March 01, 2010 repo in Corporate
Debt Securities.
2. Definitions
a. Corporate Debt Security means non-convertible debt
securities, which create or acknowledge indebtedness, including
debentures, bonds and such other securities of a company or a
body corporate constituted by or under a Central or State Act,
whether constituting a charge on the assets of the company or
body corporate or not, but does not include debt securities
issued by Government or such other persons as may be specified
by the Reserve Bank, security receipts and securitized debt
instruments

b. Security Receipts means a security as defined in clause (zg)

of section 2 of the Securitisation and Reconstruction of Financial
Assets and Enforcement of Security Interest Act, 2002 (54 of
2002)
c. Securitized debt instrument means securities of the nature
referred to in sub-clause (i.e.) of clause (h) of section 2 of the
Securities Contracts (Regulation) Act, 1956(42 of 1956).
3. Eligible securities for repo in Corporate Debt Securities
a. Only listed corporate debt securities which are rated AA or
above by the rating agencies, that are held in the security
account of the repo seller, in demat form, shall be eligible
provided that Commercial Papers (CPs), Certificates of Deposit
(CDs) and other instruments including Non-Convertible
Debentures (NCDs) of less than one year of original maturity,
shall not be eligible securities for undertaking repo.
4. Eligible Participants
The following entities shall be eligible to undertake repo transactions in
corporate debt securities:
a. Any scheduled commercial bank excluding RRBs and LABs;
b. Any Primary Dealer authorised by the Reserve Bank of
India;
c. Any non-banking financial company registered with the
Reserve Bank of India (other than Government companies
as defined in section 617 of the Companies Act, 1956);
d. All-India Financial Institutions, namely, Exim Bank,
NABARD, NHB and SIDBI;
e. Other regulated entities, subject to the approval of the
regulators concerned, viz.,
i.

Any mutual fund registered with the Securities

and Exchange Board of India;

ii.

Any housing finance company registered with

the National Housing Bank; and

iii.

Any insurance company registered with the

Insurance Regulatory and Development
Authority

f. Any other entity specifically permitted by the Reserve Bank

5. Tenor
Repos in corporate debt securities shall be for a minimum period of
one day and a maximum period of one year.
6. Trading
Participants shall enter into repo transactions in corporate debt
securities in the OTC market.
7. Reporting of Trades
a. All repo trades shall be reported within 15 minutes of the
trade on the FIMMDA reporting platform.
b. The trades shall also be reported to any of the clearing
houses of the exchanges for clearing and settlement.
8. Settlement of trades
a. All repo trades in corporate debt securities shall settle
either on a T+1 basis or a T+2 basis under DvP I (gross
basis) framework.
b. Repo transactions in corporate debt securities shall settle
in the same manner as outright OTC trades in corporate
debt securities.
c. On the date of reversal of repo trades, the clearing houses
shall compute the obligations of the parties and facilitate
settlement on DvP basis.
9. Prohibition on sale of repoed security
The security acquired under repo shall not be sold by the repo buyer
(lender of the funds) during the period of repo.
10. Haircut
a. A haircut of 25% (or higher as maybe decided by the
participants depending on the term of the repo) shall be

applicable on the market value of the corporate debt security

prevailing on the date of trade of 1st leg.
b. Participants may refer to the rating-haircut matrix that may be
published by the Fixed Income Money Market and Derivatives
Association of India (FIMMDA), to determine the appropriate
haircut.
11. Valuation
For arriving at the market value of the corporate debt security, the
participants undertaking repo in corporate bonds may refer to the
credit spreads published by the FIMMDA.
12. Capital Adequacy
The repo transactions in corporate debt securities shall attract capital
charge.
13. Disclosure
The details of corporate debt securities lent or acquired under repo or
reverse repo transactions is required to be disclosed in the Notes on
Accounts to the Balance Sheet.
14. Accounting
The repo transactions in corporate debt securities shall be accounted
as per the revised guidelines on uniform accounting for repo/reverse
repo transactions in Government securities, which is expected to be
issued separately.
15. Computation of CRR/SLR & borrowing limit
a. The amount borrowed by a bank through repo shall be reckoned
as part of its Demand and Time Liabilities (DTL) and the same
shall attract CRR/SLR .
b. The borrowings of a bank through repo in corporate bonds shall
be reckoned as its liabilities for reserve requirement and, to the
extent these liabilities are to the banking system, they shall be
netted as per clause (d) of the explanation under section 42(1)
of the RBI Act, 1934. Such borrowings shall, however, be subject
to the prudential limits for inter-bank liabilities.

16. Documentation
The participants shall enter into bilateral Master Repo Agreement as
per the documentation finalized by the FIMMDA.

***

(This update will be useful for the candidates who are appearing for
Treasury management subject).