Companies unable to pay their debts and are rated substandard assets by banks cannot raise money through non-convertible debentures (NCDs) with maturity of less than one year, the Reserve Bank of India (RBI) said in a notification.
According to RBI, companies that want to float NCDs for less than one year should have a credit rating of a minimum P2 or equivalent from authorised rating agencies.
The Issuance of Non-Convertible Debentures (Reserve Bank) Directions, 2010, which brings NCDs of up to one year under the regulatory jurisdiction of RBI, spells out clear eligibility for companies that aim to raise short-term money through such instruments.
The corporate has to have a tangible net worth of minimum Rs 4 crore as per the latest audited balance sheet; should have sanctioned working capital limit or term loan by banks or financial institutions and the borrowal account of the corporate should be classified as a standard asset by the financing banks, RBI said.
Apart from asking the companies to get a credit rating, RBI has specifically asked them to get their NCDs rated at the time of issuance.
RBI doesnt want companies to float NCDs based on stale ratings, an RBI official said. According to him, RBI has tried to make the NCD guidelines consistent with the commercial paper (CP) guidelines. The minimum credit rating has to be P2 of Crisil or such equivalent rating by other agencies, the notification said.
Also, RBI does not want companies to issue NCDs for maturities of less than 90 days from the date of issue. The exercise date of option (put/call), if any, attached to the NCDs shall not fall within the period of 90 days from the date of issue, the notification said.
Many companies have raised money through such issues though the market was hit for about a year and a half after the credit crisis gripped the world.
The market (NCD) has come down from its peak prior to the crisis, the official said. According to him, RBI is trying to analyse and understand the market and is awaiting reports.
As per RBI regulations, NCDs cannot be issued for a denomination less than Rs 5 lakh (face value) and in multiples of Rs1 lakh.