The Reserve Bank of India (RBI) issued the “Master Direction: Reserve Bank of India (Commercial Paper and Non-Convertible Debentures of original or initial maturity up to one year) Directions 2024” on January 3, 2024.
The RBI’s recent notification provides detailed guidelines for the issuance and regulation of CPs and NCDs. Key highlights include: - Applicability: These directions are effective from April 1, 2024, and apply to all entities dealing in CPs and NCDs of up to one year’s maturity. - Eligible Issuers and Investors: Broadens the scope of entities that can issue CPs and NCDs. It includes companies, NBFCs, REITs, AIFIs, and other corporates meeting specific criteria. Both residents and non-residents, as per FEMA 1999, can invest in these instruments. - Issuance and Investment Conditions: CPs and NCDs must be issued in dematerialized form, in minimum denominations of Rs. 5 lakh, and follow specific tenor limits. They cannot be underwritten or co-accepted. - Credit Enhancement and Rating Requirements: Banks and AIFIs may provide credit enhancement. CPs and NCDs must have a minimum credit rating of ‘A3’. - Primary and Secondary Market Guidelines: Includes guidelines on issuance, subscription, trading, and settlement of CPs and NCDs. Secondary market trades must be settled through DvP (Delivery versus Payment) basis. - Repayment and Default Management: Specifies no grace period for repayment and details procedures for handling defaults and buybacks. - Reporting Requirements: Mandates timely reporting of primary issuances, secondary market transactions, buybacks, and defaults. - Roles and Responsibilities: Outlines the responsibilities of Issuing and Paying Agents, Debenture Trustees, and Credit Rating Agencies.
These directions aim to strengthen the framework for short-term debt instruments, enhancing transparency and investor protection.
Disclaimer: This summary is for informational purposes only. Professionals are advised to refer to the full RBI document for comprehensive details.
Background
The Reserve Bank of India (Commercial Paper and Non-Convertible Debentures of original or initial maturity upto one year) Directions, 2024 were issued as a Master Direction (FMRD.DIRD.10/14.02.001/2023-24) on 3 January 2024 and came into force on 1 April 2024. Eligible issuers include companies, NBFCs including housing finance companies, InvITs, REITs, All India Financial Institutions, and other body corporates, co-operative societies and LLPs with a minimum net worth of Rs. 100 crore, provided their fund-based facilities from banks, AIFIs or NBFCs are classified as standard. All residents may invest, and non-residents may invest to the extent permitted under FEMA, 1999; investment in instruments issued by related parties is not permitted. Commercial paper has a tenor of 7 days to one year and NCDs 90 days to one year. The minimum denomination is Rs. 5 lakh, issuance is in dematerialised form, a minimum credit rating of A3 applies, and the instruments cannot be underwritten or co-accepted.
Source: Master Direction on Commercial Paper and Non-Convertible Debentures of original or initial maturity upto one year, 2024, FMRD.DIRD.10/14.02.001/2023-24, 3 January 2024 link