Commercial Paper and Non-Convertible Debentures of original or initial maturity up to one year-Direc
These Directions shall come into force with effect from April 01, 2024.
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 networth 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.
Eligible investors
(a) All residents are eligible to invest in CPs and NCDs.
(b) Non-residents are eligible to invest in CPs and NCDs to the extent permitted under 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.
General Guidelines:-
(a) Primary Issuance -
(i) CPs and NCDs shall be issued in dematerialised form and held with a depository registered with SEBI.
(ii) CPs and NCDs shall be issued in minimum denomination of ₹5 lakh and in multiples of ₹5 lakh thereafter.
(iii) The tenor of a CP shall not be less than seven days or more than one year. The tenor of an NCD shall not be less than ninety days or more than one year.
(iv) Issuance of a CP/NCD with options (call/put) is not permitted.
(v) Issuance of a CP/NCD is not permitted to be underwritten or coaccepted.
(vi) The offer documents for the issue of CPs and NCDs shall, at the minimum.
(vii) The primary issuances of CPs and NCDs, including both payment of funds to the issuer and issue of CPs and NCDs to the investors, shall be settled within a period not exceeding T+4 working days, where T represents the deal date, i.e., the date on which the trade details, including price/rate are agreed by the issuer and the investor(s).
(viii) Total subscription by all individuals, including Hindu Undivided Families, in any primary issuance of CPs or NCDs shall not exceed 25 per cent of the total amount issued.
(b) Discount/Coupon Rate -
(i) CPs shall be issued at a discount to the face value.
(ii) NCDs shall be issued at a discount to the face value or with fixed or floating rate coupon.
(iii) The coupon on floating rate NCDs shall be linked to a benchmark published by a Financial Benchmark Administrator or approved by the Fixed Income Money Market and Derivatives Association of India (FIMMDA) for this purpose. FIMMDA shall ensure that any floating rate approved by them for this purpose is determined transparently, objectively and in arms’ length transactions. The coupon on floating rate NCDs can also be linked to policy rates published by the Reserve Bank.
(c) Credit Enhancement -
(i) Banks and AIFIs may, based on their commercial judgement and subject to prudential guidelines issued by Department of Regulation, RBI, choose to provide stand-by assistance/credit, back-stop facility, etc., by way of credit enhancement for a CP/NCD issue.
(ii) Non-bank entities (including corporates) may provide unconditional and irrevocable guarantee for credit enhancement of CPs and NCDs issued by a group entity subject to making appropriate disclosures.
(d) End-use -
(i) 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.
(ii) 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.
(iii) The issuer shall submit a certificate from the 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.
(e) Rating Requirement -
The minimum credit rating, assigned by a Credit Rating Agency (CRA), for the issuance of CPs and NCDs shall be ‘A3’ as per rating symbol and definition prescribed by SEBI.
(f) Primary Market - Other Conditions
(i) An IPA shall be appointed for each issuance of a CP and an NCD. A Debenture Trustee shall also be appointed for each issuance of an NCD.
(ii) The subscription to the primary issue of a CP/NCD shall be routed through the IPA.
(iii) The aggregate amount of CPs and NCDs which can be issued by an issuer shall be within such limits as may be approved by the Board of Directors or its equivalent body. The aggregate amount which can be issued by an issuer regulated by a financial sector regulator shall also be subject to the limits, if any, specified by the regulator concerned.
(g) Secondary Market-Trading venue and settlement -
(i) CPs and NCDs shall be traded either in OTC markets, including on ETPs, or on recognised stock exchanges, approved by the Reserve Bank for the purpose.
(ii) The settlement cycle for OTC trades in CPs and NCDs shall be either T+0 or T+1.
(iii) All OTC secondary market transactions in CPs (including transactions undertaken on ETPs) shall be settled on a DvP basis through the clearing corporation of any recognised stock exchange, or any other mechanism approved by the Reserve Bank.
(iv) All OTC secondary market transactions in NCDs (including transactions undertaken on ETPs) shall be settled bilaterally, or on a DvP basis through the clearing corporation of any recognised stock exchange, or any other mechanism approved by the Reserve Bank.
(h) Buyback -
Issuers of CPs and NCDs are permitted to buyback the CPs and NCDs before maturity. Such buybacks shall be subject to the following conditions:
(i) The buyback of CPs can be made only after seven days from the date of issue. The buyback of NCDs can be made only after ninety days from the date of issue.
(ii) The buyback offer shall be extended to all investors in a particular issue on identical terms and conditions. The investors shall have the option to accept or reject the buyback offer.
(iii) Buyback of CPs and NCDs shall be at the prevailing market price.
(iv) The issuer of a CP/NCD shall inform the details of the buyback to the IPA on the date of buyback. In the case of NCDs, the details shall also be informed to the Debenture Trustee.
(v) The payment for the buyback of the CP/NCD by the issuer shall be routed through the IPA.
(vi) CPs and NCDs bought back, partially or in full, shall be extinguished on the date of buyback.
(i) Repayment of CPs / NCDs -
(i) There will be no grace period for repayment of CPs/NCDs.
(ii) The issuer shall make the funds for redemption available to the IPA by 3:00 P.M. on the redemption date.
(iii) The repayment of a CP/NCD, including coupon payments, shall be routed through the IPA.
(j) Default -
(i) The issuer who has defaulted on the repayment of a coupon/redemption, partially or in full, of a CP and/or NCD shall inform the details of any default in payments related to a CP/NCD to the IPA before 5:00 pm on the date of the default. In the case of NCDs, the details shall also be informed to the Debenture Trustee.
(ii) Information about any default in payments related a CP/NCD shall be publicly disseminated (e.g., through its website) by the issuer. Default details shall also be publicly disseminated on the F-TRAC Trade Repository Platform of Clearing Corporation of India Ltd (‘F-TRAC platform’).
(iii) Repayments of obligations under a defaulted CP or NCD can be made directly to the investor/s by the issuer or can be routed through the IPA or Debenture Trustee. Partial repayments, if any, of a CP/NCD shall be distributed to investors of the CP/NCD in proportion to the investment made in the CP /NCD.
(iv) Details of the repayment of the obligations related to defaulted CPs/NCDs shall be informed to the IPA and the Debenture Trustee by the issuer on the date of the repayment.
(v) In the event of a CP/NCD, being converted into another financial instrument after default, as part of any bilateral / multilateral agreement or restructuring scheme, the CP/NCD shall stand extinguished on the date of its conversion.
(vi) In the event of default of a CP / NCD, the issuer shall not be allowed to issue CPs or NCDs till full repayment of the defaulted obligation or six months after the date of default, whichever is earlier.
(vii) Any event of conversion of a CP/NCD into another financial instrument shall be reported by the issuer to the IPA and the Debenture Trustee.
(k) Market timing -
Primary issuance and secondary market trading hours shall be between 9:00 AM and 5:00 PM on a working day or as specified by the Reserve Bank from time to time.
(l) Market Practices and Documentation -
Participants / agencies in the CP and NCD markets shall follow any standardised procedures and documentation which may be prescribed by FIMMDA, in consultation with the Reserve Bank, for smooth functioning of the markets.
Reporting requirements -
(a) Primary issuances: Details of all issuances in primary markets of the CPs and NCDs shall be reported by the IPA on the F-TRAC platform by 5:30 PM on the day of issuance.
(b) Secondary market transactions: All secondary market transactions in CPs and NCDs, executed in the OTC market and/or on the recognised stock exchanges, shall be reported with time stamp within 15 minutes of execution (the time when price is agreed) on the F-TRAC platform by each counterparty to the transaction.
(c) Buybacks: Details of buybacks of CPs and NCDs shall be reported by the IPA on the F-TRAC platform by 5:30 PM on the buyback date.
(d) Default: Instances of default and repayment of defaulted obligation 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.
(e) Reporting by depositories: The depositories shall report to the Reserve Bank, the details of the CPs and NCDs held with them in the dematerialised form, in the prescribed format, at fortnightly intervals (on the 15th day and on the last day of the month) or as and when called upon to do so by the Reserve Bank.
(f) Reporting by Debenture Trustee: The Debenture Trustee shall report the details of the outstanding amount of NCDs and the particulars of default in repayment of NCD, at quarterly intervals (within 15 days from the end of the quarter), in the format to the Reserve Bank through email (reportfmd@rbi.org.in).