Private Placement Of Non-Convertible Debentures (NCDs) With Maturity Period Of More Than One Year By HFCs – Review Of Guidelines

The Reserve Bank of India ("RBI") issued a notification dated January 29, 2025¹, revising guidelines with respect to private placement of non-convertible debentures with a maturity period of more than one year ("NCDs") by Housing Finance Companies ("HFCs") ("RBI Notification"). By way of the RBI Notification, Chapter XI of the Master Direction on Non-Banking Financial Company – Housing Finance Company (Reserve Bank) Directions, 2021², as applicable to issuance of NCDs to HFCs has been repealed and now, Paragraph 58 of the Master Direction on Reserve Bank of India (Non-Banking Financial Company– Scale Based Regulation) Directions, 2023 ("2023 Directions")³, is mutatis mutandis applicable for private placement of NCDs by HFCs.

Salient Features of the 2023 Directions

i. Alignment with NBFC Guidelines

As per the RBI Notification, the guidelines and the procedure set out under Paragraph 58 read with Annexure XV of the 2023 Directions shall, in addition to provisions of the (Indian) Companies Act, 2013, so far as they are not contradictory, be applicable for private placement of NCDs (having a maturity period of more than one year) by HFCs. It is apposite to mention that earlier, these guidelines and procedures were applicable to issuance of the NCDs by Non-Banking Financial Companies ("NBFC").

ii. Instructions on the issue of NCDs to HFCs

1. As a benchmark, an investor shall have to remit a minimum subscription amount equivalent to INR 20,000 (Indian Rupees Twenty Thousand). Further, HFCs are permitted to issue NCDs under 2 (two) categories – (a) where the maximum subscription amount is less than INR 1,00,00,000 (Indian Rupees One Crore); or (b) where an investor will have to invest a minimum amount of subscription of INR 1,00,00,000 (Indian Rupees One Crore) or more.
2. In case, the maximum subscription amount is lesser than INR 1,00,00,000 (Indian Rupees One Crore), only up to 200 (two hundred) subscribers can subscribe to such NCDs in each financial year. Further, such subscription amount shall be completely secured.
3. Where NCDs with a subscription amount equal to or more than INR 1,00,00,000 (Indian Rupees One Crore) are proposed to be issued, there is no limit on the maximum number of subscribers for such NCDs.
4. The investment amount raised by HFCs pursuant to the issuance of the NCDs cannot be utilized to facilitate requests of group entities or parent companies or associates of such HFCs and such amount shall be utilized exclusively by such HFC.
5. HFCs cannot extend loans by creation of security interest against the NCDs issued by it.

iii. Immediate Applicability

The changes brought upon by the RBI Notification shall apply to all fresh private placements of NCDs (with maturity period exceeding one year) by HFCs, effective immediately from the date of the RBI Notification.

Conclusion

In conclusion, the RBI Notification marks a significant shift in the regulatory framework for private placement of NCDs by HFCs, aligning it with the existing guidelines as applicable to issuance of NCDs by NBFC under the 2023 Directions; hence, bringing in uniformity and enhancing the ease of doing business in India. This streamlines the regulatory landscape and establishes clear parameters for NCD issuances, including specific subscription limits and investor thresholds.

Footnotes

1. https://rbi.org.in/Scripts/NotificationUser.aspx?Id=12772&Mode=0

2. https://www.rbi.org.in/Scripts/BS_ViewMasDirections.aspx?id=12030

3. https://www.rbi.org.in/Scripts/BS_ViewMasDirections.aspx?id=12550

Originally published 23.03.25

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