RBI guidelines boost transparency in India’s debt market

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In a bid to bring more transparency and stability to the short-term debt market, the Reserve Bank of India (RBI) has issued new guidelines governing commercial papers (CPs) and non-convertible debentures (NCDs) with maturities up to one year, effective from 1 April 2024.

The RBI’s guidelines outline specific eligibility criteria for entities issuing CPs and NCDs, including companies, non-banking financial companies (NBFCs), infrastructure investment trusts (InvITs), real estate investment trusts (REITs) and other corporates with a minimum net worth of INR995 million (USD12 million).

These entities must ensure that any fund-based facilities from banks or NBFCs are classified as “standard” at the time of issuance. In addition, both Indian residents and eligible foreign investors can invest in these instruments, although investments in products issued by related parties are restricted to prevent conflicts of interest.

Under the new framework, CPs and NCDs must be issued in dematerialised form, with specified minimum denominations and tenors. The guidelines also cover credit ratings, credit enhancement options and end-use of funds, aiming to ensure responsible financial practices. Issuing and paying agents, debenture trustees and credit rating agencies are assigned clearly defined roles and responsibilities, ensuring compliance and accountability across the board.

Issuers are mandated to report details of primary issuances and secondary market transactions on the F-TRAC platform promptly, enhancing the efficiency and transparency of market operations.

In cases of default, issuers are prohibited from issuing new CPs or NCDs until full repayment of the defaulted obligation, or for six months from the date of default, whichever is earlier.

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