The Securities and Exchange Board of India (Sebi) has proposed the issuance of non-convertible debentures (NCDs) or non-convertible redeemable preference shares (NCRPS) with a face value of Rs 10,000, down from the current minimum issuance value of Rs 1 lakh.
Key points
- Debentures are long-term financial instruments which acknowledge a debt obligation towards the issuer. Some debentures can be converted into shares after a certain point of time at the discretion of the owner.
- The debentures which can’t be converted into shares or equities are called non-convertible debentures (or NCDs).
- NCDs are used as tools to raise long-term funds by companies through a public issue. To compensate for this drawback of non-convertibility, lenders are usually given a higher rate of return compared to convertible debentures.
- NCDs also offer various other benefits to the owner such as high liquidity through stock market listing, tax exemptions at source and safety since they can be issued by companies which have a good credit rating as specified in the norms laid down by RBI for the issue of NCDs.
- In India, usually these have to be issued of a minimum maturity of 90 days.
