RBI Permits Bank Investment in Short-Term NCDs (Up to 1 Year)
No longer current — withdrawn, no replacement on file yet
Source: Reserve Bank of India · RBI/2010-11/349 · issued 31 Dec 2010 · ~2 min read
Quick answerRBI now allows banks to invest in Non-Convertible Debentures with original maturity up to one year, issued by corporates including NBFCs. Earlier, such short-term non-SLR securities (except CPs and CDs) were prohibited. Banks must follow prudential norms and ensure the issuer discloses eligible purposes.
The rule, in the simplest words
Banks can now buy short-term NCDs (a type of company IOU that lasts up to 1 year) from companies, including NBFCs (non-bank finance companies).
Before this rule, banks could not buy any short-term non-SLR (non-government) securities except CPs (commercial paper) and CDs (certificates of deposit).
The company selling the NCD must tell in writing what it will use the money for, and that purpose must be something banks are allowed to lend for.
These short-term NCDs do not need to be listed on a stock exchange or get a credit rating, but banks must still check the company's credit risk carefully.
How it plays out — a real example
A treasury officer in Indore sees her bank has extra cash for a few months. She reads the new RBI rule and buys a 9-month NCD from a local NBFC that lends to farmers. The NBFC's document says the money will be used for farm equipment loans, which is allowed. She skips the listing and rating steps but still checks the NBFC's past repayment record before investing.
What changed
Earlier, banks were barred from investing in non-SLR securities with original maturity below one year, except Commercial Paper and Certificates of Deposit. This circular permits banks to invest in Non-Convertible Debentures (NCDs) with original or initial maturity up to one year, subject to conditions. It also exempts these NCDs from the listing and rating requirements that apply to other non-SLR securities.
What it means for you
Banks now have a new avenue for deploying short-term surplus funds into corporate debt, potentially improving yield on liquidity. However, they must still adhere to existing prudential guidelines and ensure the NCD proceeds are used for purposes eligible for bank finance. The exemption from listing and rating reduces compliance burden but demands stronger internal credit assessment.
Historical instruction — do not use for current compliance. This is what was required at the time; it no longer reflects current RBI requirements. If no replacement rule is linked above, that only means none is recorded on our register yet — it does not prove no later applicable rule exists. Confirm on the official RBI source below.
What banks were required to do at the time
Update your investment policy to include short-term NCDs (up to 1 year) as a permissible asset class.
Verify that the issuer's disclosure document clearly states the purpose of the NCD and that purpose is eligible for bank finance under the Master Circular on Bank Finance to Non-Banking Financial Companies.
Ensure robust internal credit risk assessment for these unlisted/unrated NCDs, as listing and rating requirements are waived.
Monitor compliance with extant prudential guidelines on non-SLR investments, including exposure limits and due diligence.
Who it affects
All commercial banks (excluding Regional Rural Banks), Treasury and investment departments of banks, Corporate issuers of short-term NCDs, including NBFCs
❓ Common questions
Does this circular apply to Regional Rural Banks?
No, the circular is addressed to all commercial banks excluding Regional Rural Banks.
Are these short-term NCDs exempt from listing and rating requirements?
Yes, the circular explicitly states that the earlier guidelines on listing and rating requirements for non-SLR securities do not apply to banks' investments in these NCDs.
What must the issuer disclose for these NCDs?
The issuer must disclose the purpose for which the NCDs are being issued in the disclosure document, and that purpose must be eligible for bank finance as per RBI's Master Circular on Bank Finance to NBFCs.
📜 Read the original circular — full text as issued by RBI
The guidelines have been repealed. Please refer to the Reserve Bank of India (Classification, Valuation and Operation of Investment Portfolio of Commercial Banks) Directions, 2021 .
RBI/2010-11/349
DBOD.BP.BC.No.72/21.04.141/2010-11
December 31, 2010
The Chairmen / Chief Executives of
All Commercial Banks
(excluding Regional Rural Banks)
Dear Sir,
Investment in Non-SLR Securities- Non-Convertible Debentures (NCDs) of maturity up to one year
Please refer to circular DBOD.BP.BC.44/21.04.141/2003-04 dated November 12, 2003 on Prudential Guidelines on Banks’ Investment in Non-SLR Securities which, inter alia , advised the banks that they should not invest in Non-SLR securities of original maturity of less than one-year, other than Commercial Paper and Certificates of Deposits which are covered under RBI guidelines.
2. We also draw your attention to circulars IDMD.DOD.09/11.01.01(A)/2009-10 dated June 23, 2010 and IDMD.PCD.23/ED(HRK)-2010 dated December 6, 2010 on Issuance of Non-Convertible Debentures (Reserve Bank) Directions, 2010 which, inter alia , allowed banks to invest in NCDs with original or initial maturity up to one year issued by corporates [including Non-Banking Financial Companies (NBFCs)] subject to the approval of the statutes governing them and after obtaining regulatory approval.
3. In this connection, we advise that henceforth banks are permitted to invest in NCDs with original or initial maturity up to one year issued by corporates (including NBFCs). However, while investing in such instruments banks should be guided by the extant prudential guidelines in force, ensure that the issuer has disclosed the purpose for which the NCDs are being issued in the disclosure document and such purposes are eligible for bank finance (refer to para 5 and 7 of Master Circular DBOD.BP.BC.No.5/21.04.172/2010-11 dated July 1, 2010 on Bank Finance to Non-Banking Financial Companies).
4. We also advise that the guidelines on listing and rating requirements pertaining to non-SLR securities issued vide circular No. DBOD.BP.BC.44/21.04.141/2003-04 dated November 12, 2003 and DBOD.No.BP.BC.53/21.04.141/2003-04 dated December 10, 2003 would not be applicable to banks’ investments in NCDs.
Yours faithfully,
(B. Mahapatra)
Chief General Manager-in-Charge
Reproduced for reference with acknowledgment — Source: Reserve Bank of India · RBI/2010-11/349 · issued 31 Dec 2010. The plain-English explanation above is BankPulse’s own independent summary.
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BankPulse Compliance Evidence Pack — generated 03 Aug 2026 · status cross-checked against RBI’s official withdrawal register (refreshed weekly). Official RBI source: https://www.rbi.org.in/Scripts/NotificationUser.aspx?Id=6187&Mode=0 — Plain-English summary by BankPulse (bankpulse.ai), reviewed by our expert reviewer, CA Amit Jain. Independent platform, not affiliated with the Reserve Bank of India; is our own plain-English paraphrase, not RBI’s original wording.
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