The Reserve Bank of India (RBI) has recently reviewed the directions on commercial papers (CPs) and non-convertible debentures (NCDs). The review was done based on the market feedback and a master direction has been issued accordingly. It will come into effect on April 1, 2024.
Here we summarise some of the key points of the latest master direction, which include the following:
What are commercial papers/ non-convertible debentures?
Commercial paper (CP) refers to an unsecured money market instrument issued in the form of a promissory note, notes the latest master direction released on January 3, 2024.
Non-convertible debentures (NCDs) refer to a secured money market instrument with an original or initial maturity up to one year.
Who can invest?
All residents are eligible to invest in commercial papers and non-convertible debentures. Non-residents are eligible to invest in CPs and NCDs to the extent permitted under FEMA or the rules framed under.
What are minimum denominations?
CPs and NCDs are issued in dematerialised form and held with a depository registered with Sebi. They will be issued in a minimum denomination of ₹5 lakh and in multiples of ₹5 lakh thereafter.
What are tenor & settlement dates?
The tenor of a CP cannot be less than seven days or more than a year. The tenor of an NCD cannot be less than 90 days or more than one year.
It is not allowed to issue these instruments with options. The settlement must be done within a period not exceeding T+4 working days where T represents the deal date.
What can they be used for?
Funds raised through CPs and NCDs will be used to finance current assets and operating expenses. It is important for the issuer to disclose the end use in the offer document. And in case the end purpose is different from financing current assets and operating expenses, it should be disclosed in the offer document.
What are the credit rating requirement?
The minimum credit rating assigned by a credit rating agency for the issuance of CPs and NCDs will be ‘A3’ as per rating symbol and definition as prescribed by Sebi.
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Published: 04 Jan 2024, 07:04 PM IST