PDs allowed to invest in short-term NCDs up to one year
Current · Source: Reserve Bank of India · RBI/2010-11/401 · issued 10 Feb 2011 · ~1 min read
Quick answerRBI now permits standalone Primary Dealers to invest in corporate NCDs (including NBFCs) with original maturity up to one year. However, unlisted NCD investments must stay within 10% of the non-G-Sec portfolio on an ongoing basis.
The rule, in the simplest words
Standalone Primary Dealers (banks that trade government bonds) can now buy corporate or NBFC (Non‑Banking Financial Company) NCDs (Non‑Convertible Debentures) that have an original maturity of up to one year.
If the NCD is unlisted, its amount must stay at or below 10 % of the dealer’s total non‑government securities (non‑G‑Sec) holdings, and this limit is checked continuously.
All purchases must still follow the existing prudential guidelines and credit‑limit rules that apply to other non‑government investments.
How it plays out — a real example
Rohit, a treasury officer at a primary‑dealer bank in Mumbai, looks at the day's short‑term NCD market, selects a 9‑month debenture issued by XYZ Ltd (an NBFC), confirms that adding it will keep unlisted NCDs under the 10 % cap of the bank’s non‑government portfolio, and records the trade, feeling confident that the new rule lets him earn a better return while staying safe.
What changed
Earlier, PDs were barred from investing in non-government securities with original maturity under one year, except for CPs and CDs. This circular lifts that restriction for NCDs, allowing PDs to invest in such short-term NCDs issued by corporates and NBFCs. A new 10% cap on unlisted NCDs relative to the non-G-Sec portfolio is introduced.
What it means for you
PDs gain more flexibility to deploy funds in short-term corporate debt, potentially improving yield on their non-G-Sec book. The 10% unlisted NCD limit is a prudential check to manage liquidity and credit risk. Banks that are PDs or lend to PDs should note this expanded investment avenue and the associated risk limits.
What you must do
Update internal investment policies to reflect the new permission for short-term NCDs up to one year.
Monitor the 10% cap on unlisted NCDs within the non-G-Sec portfolio on a continuous basis.
Ensure compliance with extant prudential guidelines and earlier circulars on NCD investments.
Review counterparty credit limits for corporate and NBFC issuers of short-term NCDs.
Who it affects
Standalone Primary Dealers, Treasury departments of banks acting as PDs, Corporate and NBFC issuers of short-term NCDs
❓ Common questions
Does this circular apply to all PDs or only standalone ones?
It applies specifically to standalone Primary Dealers, as addressed in the circular.
What is the limit on unlisted NCD investments?
Investments in unlisted NCDs must not exceed 10% of the size of the PD's non-G-Sec portfolio at any point.
Are there any other conditions for investing in these NCDs?
Yes, PDs must follow all extant prudential guidelines and the instructions in the referenced circulars on NCD issuance.
📜 Read the original circular — full text as issued by RBI
RBI/2010-11/401
IDMD. PCD.No. 26/14.03.05/2010-11
February 10, 2011
All Standalone Primary Dealers
Dear Sir,
Investment in non-Government Securities- Non-Convertible Debentures ( NCDs ) of maturity up to one year by standalone Primary Dealers (PDs)
Please refer to paragraph 5.8.2 of the Master Circular RBI/2010-11/81 IDMD.PDRD. 01/03.64.00/2010-11 dated July 1, 2010 which, inter alia , advised the PDs that they should not invest in non-Government securities of original maturity of less than one-year, other than the Commercial Papers and Certificates of Deposits which are covered under the RBI guidelines.
2. We also draw your attention to circulars IDMD.DOD.10/11.01.01(A)/2009-10 dated June 23, 2010 and IDMD.PCD.No.24/14.03.03/2010-11 dated December 6, 2010 containing directions on Issuance of Non-Convertible Debentures (NCDs) which, inter alia , allowed PDs to invest in NCDs with original or initial maturity up to one year issued by the 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 PDs are permitted to invest in NCDs with original or initial maturity up to one year issued by the corporates (including NBFCs). However, their investments in such unlisted NCDs should not exceed 10 per cent of the size of their non-G-Sec portfolio on an on-going basis.
4. While investing in such instruments, PDs should be guided by the extant prudential guidelines in force and instructions given in the circulars ibid .
Yours faithfully
(K.K. Vohra)
Chief General Manager
Reproduced for reference with acknowledgment — Source: Reserve Bank of India · RBI/2010-11/401 · issued 10 Feb 2011. The plain-English explanation above is BankPulse’s own independent summary.
Review counterparty credit limits for corporate and NBFC issuers of short-term NCDs.
📜 Compliance
Update internal investment policies to reflect the new permission for short-term NCDs up to one year.
Monitor the 10% cap on unlisted NCDs within the non-G-Sec portfolio on a continuous basis.
Ensure compliance with extant prudential guidelines and earlier circulars on NCD investments.
Grouped from the action items above — a single circular may involve more than one team.
Worked example & action-note template
Example: if you are a Compliance officer at a bank this circular applies to (Standalone Primary Dealers, Treasury departments of banks acting as PDs, Corporate and NBFC issuers of short-term NCDs), your first concrete step on “PDs allowed to invest in short-term NCDs up to one year” is: “Update internal investment policies to reflect the new permission for short-term NCDs up to one year.” (RBI issued this 10 Feb 2011).
Circular: RBI/2010-11/401 -- PDs allowed to invest in short-term NCDs up to one year
Issued: 10 Feb 2011
Action required: Update internal investment policies to reflect the new permission for short-term NCDs up to one year.
Action required: Monitor the 10% cap on unlisted NCDs within the non-G-Sec portfolio on a continuous basis.
Action required: Ensure compliance with extant prudential guidelines and earlier circulars on NCD investments.
Action required: Review counterparty credit limits for corporate and NBFC issuers of short-term NCDs.
Owner: ____________ Target date: ____________
Board/committee approval needed? Y / N
Evidence filed in compliance register on: ____________
Built only from this circular’s own published fields — not legal advice; always confirm against the official RBI source.
💬 Banker Discussion
Discuss this circular with fellow bankers — reply, upvote what helps, report what doesn’t belong. Be professional; no client data. Views are the commenter’s own, not BankPulse’s.
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=6260&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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