Master Direction – Reserve Bank of India (Commercial Paper and Non-Convertible Debentures of original or initial maturity upto one year) Directions, 2024
UR
- Applies toAll regulated entities
- StatusIn force
- IssuedJan 03, 2024
- Amendmentsnone tracked
- Length45 points in 4 sections · 4 min read
The four dates on this rule
- PublishedJan 03, 2024The day RBI put this document out. This is the same day as the Issued date on this rule.
- Starts to applyApril 01, 2024The day this rule starts to apply, as RBI's own text states it.
- Time to get ready89 daysThe room between the day it was published and the day it starts to apply.
- Last date to actNot statedNo date to act by was found in this document. Other dates may sit inside single paragraphs.
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44 of the 45 points name no product and bind every product. All products.
Numbers to remember
| ₹100 crore | A body corporate needs ₹100 crore net worth, and legal power to borrow, to issue these. RBI Para 3(a) |
| ₹5 lakh | Every CP or NCD is issued in units of ₹5 lakh. RBI Para 5(a) |
| seven days | A CP must run for seven days to one year. RBI Para 5(a) |
| ninety days | An NCD must run for ninety days to one year. RBI Para 5(a) |
| four working days | Funds and CP/NCD units must both move within four working days of the deal. RBI Para 5(a) |
| 25 per cent | Individuals together cannot take more than 25 per cent of an issue. RBI Para 5(a) |
| three months | The issuer's CEO or CFO must certify fund use within three months, or by maturity. RBI Para 5(d) |
| six months | A defaulting issuer cannot issue new CP or NCD until it repays, or six months, whichever comes first. RBI Para 5(j) |
| fifteen days | The Debenture Trustee reports NCD status to RBI within fifteen days of each quarter. RBI Para 6 |
What it says
How firm is each point
Stated by RBI — RBI’s own paragraph says this. We have only made it plainer.
Our reading — BankPulse read RBI’s paragraph and shortened it. The paragraph is the authority, not this line.
Needs judgement — RBI leaves this to the bank to settle, so nobody can give you a fixed number here.
Can be read two ways
A point marked this way sits on an RBI paragraph that can honestly be read two ways. Our own sentence takes one of the two. BankPulse does not choose for you: read RBI’s own paragraph, at the number printed on the point, before you act on it.
Two ways — both, or either one. RBI’s paragraph joins two things in the and-or form. One reading: Both of them apply, together. The other: Either one of them, on its own, is enough.
Must know
1. Applies to all CP/NCD dealers
This rule covers everyone who deals in Commercial Paper or these Non-Convertible Debentures.
2. Issuer's loans must be standard
The issuer's own loans from banks or NBFCs must be standard, not overdue, to issue a CP or NCD.
3. Net worth for other issuers
A body corporate needs ₹100 crore net worth, and legal power to borrow, to issue these.
4. Cooperative societies and LLPs too
Cooperative societies and LLPs with ₹100 crore net worth may also issue CP.
5. Every resident may invest
Every resident may invest in CP and NCD.
6. Non-residents invest within FEMA
A non-resident may invest only as much as FEMA rules allow.
7. No investing in related parties
Nobody may buy a CP or NCD issued by its own related party.
8. Minimum size five lakh
Every CP or NCD is issued in units of ₹5 lakh.
BankPulse example. An investor wants ₹12 lakh of a CP. That is not a multiple of ₹5 lakh, so the issuer offers ₹10 lakh or ₹15 lakh instead.
9. How long a CP runs
A CP must run for seven days to one year.
10. How long an NCD runs
An NCD must run for ninety days to one year.
11. No call or put options
A CP or NCD cannot carry a call or put option.
12. Cannot be underwritten
Nobody may underwrite or co-accept a CP or NCD issue.
13. Settled within four working days
Funds and CP/NCD units must both move within four working days of the deal.
14. Cap on individual investors
Individuals together cannot take more than 25 per cent of an issue.
BankPulse example. A company issues CP worth ₹200 crore. Individuals together may take 25 per cent of it, which comes to ₹50 crore.
15. CP always sold at discount
A CP is always issued at a discount to its face value.
16. NCD coupon can float
An NCD can carry a discount, a fixed coupon, or a floating coupon.
17. End-use must be disclosed
The issuer must state in the offer document what the money is for.
18. CEO/CFO certifies the fund use
The issuer's CEO or CFO must certify fund use within three months, or by maturity.
19. Minimum credit rating A3
A CP or NCD needs an A3 or better credit rating.
20. Every issue needs an IPA
Every CP or NCD issue needs an Issuing and Paying Agent.
21. Every NCD needs a Trustee
Every NCD issue also needs a Debenture Trustee.
22. Board sets the issue limit
The issuer's own board must approve its total CP and NCD limit.
23. CP buyback after seven days
A CP cannot be bought back in its first seven days.
24. NCD buyback after ninety days
An NCD cannot be bought back in its first ninety days.
25. No grace period on repayment
A CP or NCD must be repaid exactly on its due date.
26. Redemption funds ready by 3pm
The issuer must hand redemption money to the IPA by 3 pm.
27. Default reported by 5pm
A defaulting issuer must tell the IPA by 5 pm that day.
28. Barred till repaid or 6months
A defaulting issuer cannot issue new CP or NCD until it repays, or six months, whichever comes first.
29. IPA must report every issue
The IPA must report every new CP or NCD issue by 5:30 pm that day.
30. Trades reported within 15 minutes
Every secondary market trade is reported within fifteen minutes of execution.
31. Depositories report holdings
Depositories must tell RBI what CP and NCD they are holding, in demat form.
32. Debenture Trustee reports quarterly
The Debenture Trustee reports NCD status to RBI within fifteen days of each quarter.
33. IPA must confirm the issuer
The IPA must confirm the issuer is allowed to borrow this way.
34. CRA needs SEBI and RBI
Only a CRA registered with SEBI and accredited by RBI may rate CP or NCD.
35. Barred a month for breach
RBI may bar a rule-breaker from the CP/NCD market for a month at a time.
Background
1. Called the 2024 Directions
This rulebook is the 2024 Directions on Commercial Paper and these Non-Convertible Debentures.
2. Effective from 1 April 2024
The rule started on 1 April 2024.
3. What a CP is
A CP is an unsecured promissory note traded in the money market.
4. What an NCD is
An NCD is a secured money market instrument maturing within one year.
5. Credit enhancement is allowed
A bank or AIFI may back a CP or NCD issue with credit support.
6. Where CP and NCD trade
CP and NCD trade over the counter, on ETPs, or on approved stock exchanges.
7. Trading hours 9am to 5pm
CP and NCD trading runs from 9 am to 5 pm on working days.
8. RBI may bar the IPA
RBI may stop a rule-breaking IPA from acting as IPA for a period.
9. RBI can demand information
RBI can ask any CP or NCD market player for information.
10. Older deposit rule doesn't apply
An NBFC's CP funds under this rule are not treated as public deposits.