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RBI Announces Issuance of Non-Convertible Debentures (Reserve Bank) Directions, 2010 (Full Guidelines)
June 23, 2010:
The Reserve Bank of India, having considered it necessary in public interest and to regulate the financial system of the country to its advantage, in exercise of its powers conferred under sections 45K, 45L and 45W of the Reserve Bank of India Act, 1934 and of all the powers enabling it in this behalf, hereby gives to the agencies dealing in securities and money market instruments, the following directions for issuance of Non-Convertible Debentures (NCDs) of original or initial maturity up to one year.
1. Short title and commencement of the directions
These directions may be called the Issuance of Non-Convertible Debentures (Reserve Bank) Directions, 2010 and they shall come into force with effect from August 02, 2010.
2. Definition
For the purposes of these Directions,
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;
“Corporate” means a company as defined in the Companies Act, 1956 (including NBFCs) and a corporation established by an act of any Legislature
3. Eligibility to issue NCDs
A corporate shall be eligible to issue NCDs if it fulfills the following criteria, namely,
the corporate has a tangible net worth of not less than Rs.4 crore, as per the latest audited balance sheet;
the corporate has been sanctioned working capital limit or term loan by bank/s or all-India financial institution/s; and
the borrowal account of the corporate is classified as a Standard Asset by the financing bank/s or institution/s.
4. Rating Requirement
4.1 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.
4.2 The minimum credit rating shall be P-2 of CRISIL or such equivalent rating by other agencies.
4.3 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.
5. Maturity
5.1 NCDs shall not be issued for maturities of less than 90 days from the date of issue.
5.2 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.
5.3 The tenor of the NCDs shall not exceed the validity period of the credit rating of the instrument.
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