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Friday, November 06, 2009

RBI released draft guidelines on NCDs

Assist to meet short term funding requirements 

On 3rd November 2009, RBI has released draft guidelines on issuance of Non-Convertible Debentures (NCDs) of maturity less than one year for comments.

What is NCDs?

Non-Convertible Debentures means secured, negotiable money market instruments with original maturity of less than one year issued by corporate (including NBFCs) to meet their short term funding requirements, issued by way of private placement with investors.

Any corporate that fulfills the following criteria are eligible to issue the NCDs of less than one year:

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


ii. The company has been sanctioned working capital limit by bank's or all-India financial institution's

iii. The borrower account of the company is classified as a Standard Asset by the financing bank's, institution's.


In regard with maturity, NCDs shall not be issued for maturities of less than 90 days from the date of issue. 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 and the maturity date of the NCD shall co-terminate with the date up to which the credit rating of the issuer is valid.

Limits and the Amount of Issue of NCDs

The aggregate amount of the NCDs from an issuer shall be within the limit as approved by the Board of Directors of the corporate or the quantum indicated by the Credit Rating Agency for the specified rating, whichever is lower. The total amount of the NCDs proposed to be issued should be raised within a period of two weeks from the date on which the issuer opens the issue for subscription.

Who can invest?

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). Investment by FIIs shall be within the limits set for their investments by the Securities and Exchange Board of India (SEBI).
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