The Reserve Bank of India (RBI) has issued revised guidelines pertaining to non-convertible debentures (NCDs) and the buyback of commercial papers (CPs). These changes, slated to take effect from April 1, 2024, seek to redefine the issuance and trading norms for these short-term financial instruments.
As per the new rules, both CPs and NCDs are now mandated to be issued in dematerialised form, to be held with a depository registered with the Securities and Exchange Board of India (SEBI).
Dematerialisation is the process by which the physical certificates of an investor are converted to an equivalent number of securities in electronic form.
Furthermore, RBI has asked CPs and NCDs to be issued in minimum denominations of ₹5 lakh, ensuring a structured framework for their issuance.
Under the revised guidelines, CPs will have a tenor ranging from seven days to one year, while NCDs will have a tenor between 90 days and one year.
Earlier, the buyback offer may not be made before 30 days from the date of issue, as per the Operational Guidelines for Commercial Paper issued by the Fixed Income Money Market and Derivatives Association of India in 2020.
The issuance of CPs/NCDs with options (call/put) is prohibited, alongside underwriting or co-acceptance of these instruments, the central bank said.
Distinct regulations have been set regarding the pricing of CPs and NCDs. CPs are to be issued at a discount to the face value, while NCDs can be issued at a discount to the face value or with fixed or floating-rate coupons.
Of particular significance is the provision regarding the buyback offer.
The RBI has mandated that the buyback offer must extend to all investors in a particular issue on identical terms and conditions, granting investors the autonomy to accept or reject the buyback offer.
Additionally, the buyback of CPs and NCDs will be executed at the prevailing market price.
Commenting on the changes, Jyoti Prakash Gadia, Managing Director at Resurgent India, said that the guidelines aim to ensure transparent and equitable mechanisms for buyback and secondary trading.
"The mechanism of buyback of the money markets and secondary trading has been made transparent equitable and smooth while avoiding call-and-put options, thereby making the mechanism more robust and sustainable.
The roles and responsibilities of various stakeholders including the IPA (Issuing and paying agency), debenture trustees and credit rating agencies have also been well defined in the revised master directions to ensure more clarity and an active market," he said.
(Edited by : Amrita)
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