RBI tightens norms for short term commercial papers, non-convertible debentures

Mumbai: The Reserve Bank of India has tightened rules for the issuance of short term Commercial Papers (CPs) and Non-Convertible Debentures (NCDs), with an initial maturity of up to one year.

The new norms, which come into effect from April 1, involve six key changes.

The tenor of such short term CPs cannot be less than seven days or exceed a year, while those of NCDs cannot be less than 90 days or more than one year, the RBI said.

As per the revised norms, CPs and NCDs issued from April 1 onwards will have a minimum denomination of Rs 5 lakh and in multiples of Rs 5 lakh thereafter. Both these debt instruments cannot be issued with options, while the settlement must be done within a period not exceeding T+4 working days, as per the new rules issued on Thursday.

CPs and NCDs shall be issued only in dematerialised form and held with a depository registered with Sebi. They cannot be permitted to be underwritten or co-accepted. The central bank has made it mandatory for the issuer to disclose the end use of the money raised through these instruments.

According to the RBI, total subscription by all individuals in any primary issuance of CPs or NCDs shall not exceed 25 per cent of the total amount issued.

CPs shall be issued at a discount to the face value, while NCDs shall be issued at a discount to the face value or with a fixed or floating rate coupon. The coupon on floating rate NCDs shall be linked to a benchmark published by a financial benchmark administrator, or approved by the Fixed Income Money Market and Derivatives Association, which shall ensure that any floating rate approved by them is determined transparently.

The coupon on floating rate NCDs can also be linked to policy rates published by the RBI. The new norms have been issued after reviewing various directions related to the money market.