The Reserve Bank of India (RBI) in its Notification No.FMRD.DIRD.10/14.02.001/2023-24 dated January 03, 2024, introduced certain changes in the Master Direction norms relating to Commercial Paper and Non-Convertible Debentures of original or initial maturity up to one year. The new direction is effective from April 1, 2024.
Commercial Paper (CP) is an unsecured money market instrument issued in the form of a promissory note. (To learn more Click Commercial Paper)
Non-Convertible Debenture (NCD) means a secured money market instrument with an original or initial maturity upto one year. (To learn more click debentures)
The following are the norms of the new direction:
CPs and NCDs may be issued by the following entities subject to the condition that all fund-based facilities availed, if any, by the issuer from banks/ AIFIs / NBFCs are classified as Standard at the time of issue:
- All residents are eligible to invest in CPs and NCDs.
- Non-residents are eligible to invest in CPs and NCDs to the extent permitted under the Foreign Exchange Management Act (FEMA), 1999, or the rules/regulations framed thereunder. Provided that no person, resident or non-resident, can invest in CPs and NCDs issued by related parties either in the primary or through the secondary market. ( Related parties include parent companies, subsidiaries, associate firms, joint ventures, or a company or entity that is controlled or significantly influenced or managed by a person who is a related party.)
- CP and NCDs shall be issued in dematerialised form and held with a depository registered with SEBI.
- CP and NCDs shall be issued in minimum denomination of Rs.5 lakh and in multiples of Rs.5 lakh thereafter.
- The tenor of a CP shall not be less than seven days or more than one year.
- The tenor of NCD shall not be less than 90 days or more than one year.
- The issuance of a CP/NCD with options (call/put) is not permitted.
- Issuance of CP/NCDs is not permitted to be underwritten or co-accepted.
- CPs shall be issued at a discount to the face value.
- NCDs shall be issued at a discount to the face value or with a fixed /floating rate coupon.
- Buyback of CPs and NCDs shall be at the prevailing market price. The issuer of CPs and NCDs has to inform the details of the buyback to the Issuing and Paying Agent (IPA) and debenture Trustee respectively on the date of the buyback.
- The payment for the buyback of the CP/NCD by the issuer as well as the repayment of CP/NCD, including coupon payments shall be routed through the IPA.
- Instance details of CPs and NCDs as well as defaulted repayment obligations shall be reported by the IPA on the F-TRAC platform by 5:30 PM on the day of default or the day of repayment of defaulted obligations, as the case may be.
- The minimum credit rating, assigned by a Credit Rating Agency (CRA), for the issuance of CPs and NCDs shall be ‘A3’ as per the rating symbol and definition prescribed by SEBI.
- Eligible issuers:
(a) CPs and NCDs may be issued by the following entities subject to the condition that all fund-based facilities availed, if any, by the issuer from banks/ AIFIs / NBFCs are classified as Standard at the time of issue:
(i) Companies;
(ii) NBFCs, including Housing Finance Companies (HFCs);
(iii) InvITs and REITs;
(iv) All India Financial Institutions (AIFIs);
(v) Any other body corporate with a minimum net worth of ₹100 crore, provided that the body corporate is statutorily permitted to incur debt or issue debt instruments in India; and
(vi) Any other entity specifically permitted by the Reserve Bank.
(b) Co-operative societies and limited liability partnerships with a minimum net worth of ₹100 crore, may also issue CPs under these Directions, subject to the condition that all fund-based facilities availed, if any, by the issuer from banks/ AIFIs / NBFCs are classified as Standard at the time of issue.
End-use:
Funds raised through CPs and NCDs shall ordinarily be used to finance current assets and operating expenses. The end-use of the funds raised through a CP or an NCD shall be disclosed in the offer document. Where funds raised are used for purposes other than financing current assets and operating expenses, the exact/ specific end-use shall be disclosed in the offer document. The issuer shall submit a certificate from the Chief Executive Officer/Chief Financial Officer (CEO/CFO) to the IPAs concerned that the proceeds of CPs and NCDs have been used for the disclosed purposes and that all other provisions of these Directions and conditions of the offer document have been adhered to. The certificate shall be provided to the IPA within 3 months of the issue of CP/NCD or on maturity of the issue, whichever is earlier.
