Networth of Rs 4 crore must to raise funds via short-term NCDs

Companies must have a minimum net worth of Rs 4 crore for raising resources through non-convertible debentures (NCDs) with maturity of less than a year.

The Reserve Bank of India (RBI), which today issued draft guidelines for NCD issues, said the company should also have a working capital limit sanctioned by a bank or a financial institution. The account of the company must be a standard asset, it said.

The guidelines would also cover NCDs with original maturity of more than one year with a call and put option that could be exercised within a year from the date of the issue, RBI said.

At present, neither RBI nor the Securities and Exchange Board of India regulate this segment of NCDs.

NCDs are secured and negotiable money market instruments issued by corporate bodies, including non-banking finance companies, to meet short-term funding needs. These are issued through private placement with investors.

An NCD issuer should have a minimum credit rating of P-2 of Crisil or its equivalent (in case of other agencies).

RBI has barred companies from issuing NCDs with maturity of less than 90 days from the issue date. Also, the exercise date for the put and call option attached to the debentures should not fall within 90 days of the issue date.

The maturity date for NCDs shall co-terminate with the date up to which the credit rating of the issuer is valid. NCDs can be issued in denomination of Rs 500,000 or multiples.