Private Placement of Debentures by NBFCs

In light of the Sahara scam, the Reserve Bank of India issued a notification dated June 27, 2013 (Guidelines on private placement by NBFCs) to put in certain checks and balances. The key features of the said guidelines are as follows:

1.       Offer Document:

a.       Should be issued within maximum period of 6 months from the date of the Board Resolution authorizing the issue.

b.      Should include the names and designations of the authorized officials and must contain information on purpose for which resources are being raised.

c.       "For Private Circulation Only" should be printed or typed on the offer document.

d.      General information including the address of the registered office of the NBFC, date of opening/closing of the issue, etc. should be clearly mentioned.

2.       Debentures shall be issued by NBFCs only for deployment of funds on its own balance sheet and not to facilitate resource requests of group entities/ parent company / associates.

3.       Private placement shall be restricted to only 49 investors identified upfront by NBFCs.

4.       Minimum subscription amount for a single investor shall be Rs. 25 lakh and in multiples of Rs.10 lakh thereafter.

5.       Minimum time gap of at least six months between two private placements.

6.       Issue of Secured Debentures: NBFCs to issue only fully secured debentures. If, at the stage of issue, in case the security cover is insufficient/not created, the same needs to be created within one month from the date of issue and till then the issue proceeds shall be placed under escrow until creation of security.