What changed
RBI formalized guidelines for short-term NCDs (up to one year maturity) under the Issuance of Non-Convertible Debentures (Reserve Bank) Directions, 2010. Key requirements include tangible net worth of at least Rs.4 crore, a standard asset classification from financing banks, and a minimum credit rating of P-2 (CRISIL equivalent). NCDs cannot have maturity less than 90 days, and denominations must be at least Rs.5 lakh.
What it means for you
Banks and lenders must ensure that corporates issuing short-term NCDs meet the prescribed eligibility criteria, including net worth and asset quality standards. The minimum rating requirement reduces credit risk for investors. The 90-day minimum maturity prevents ultra-short-term instruments, aligning with prudential norms. Banks financing such corporates should verify compliance to avoid regulatory issues.
What you must do
- Verify that corporate borrowers issuing NCDs have tangible net worth of at least Rs.4 crore as per latest audited balance sheet.
- Ensure the borrowing account is classified as a Standard Asset by the financing bank or institution.
- Check that the NCD has a minimum maturity of 90 days and a credit rating of at least P-2 (CRISIL equivalent) from a SEBI-registered agency.
- Confirm that the NCD denomination is at least Rs.5 lakh (face value) and in multiples of Rs.1 lakh.
- Review board-approved limits for NCD issuance and ensure aggregate amount does not exceed approved limits or rating agency quantum.
Who it affects
Corporates (including NBFCs) issuing short-term NCDs, Banks and financial institutions financing such corporates, Credit rating agencies, Market participants dealing in money market instruments
What is the minimum net worth required for a corporate to issue short-term NCDs?
The corporate must have a tangible net worth of not less than Rs.4 crore as per the latest audited balance sheet.
What is the minimum credit rating needed for these NCDs?
The minimum credit rating is P-2 of CRISIL or an equivalent rating from other SEBI-registered agencies like ICRA, CARE, or FITCH.
Can an NCD have a maturity of less than 90 days?
No, NCDs cannot be issued for maturities of less than 90 days from the date of issue. Any put/call option also cannot be exercised before 90 days.