RBI issues draft norms on non-convertible debentures

The Reserve Bank of India (RBI) today came out with draft guidelines to regulate the issuance of non-convertible debentures (NCDs) with a maturity of less than a year by companies.

A debt instrument through which companies raise capital, non-convertible debentures with a maturity of less than a year till now are not regulated by either Sebi or the RBI.

The draft says these NCDs can be issued only by those who have net worth of at least Rs 4 crore as per their latest audited balance sheets.

Also, the instrument should not be issued for maturities of less than 90 days from the date of issue. In fact, the excercise date of option (put or call) should not fall within 90 days from the date of issue, the draft guidelines says.

"The move is very welcome. The regulation of NCDs is very important as the instrument with a put or call option of less than a year is being used by a lot of corporates now," said Jagannatham Thunguntla, equity head, SMC Capitals.

He said that regulation of these instruments is needed to safeguard the interests of small investors who put in money in these bonds.

The draft says the eligible companies who intend to issue the NCDs will have to obtain credit rating from one of the rating agencies.