Regulatory Aspects Of Debt Market In India

A Debt Market Presentation
Regulatory Aspects Of
Debt Market
A Presentation by:
Shashank Udupa Manohar Rao
Ashutosh Parita Thakkar
Amar Vora Yash Thakkar
Purvi Visaria

Topics To Covered
 Introduction to the Regulators of Debt Market
• Ashutosh Athavale
 Government Securities Act, 2006
• Parita Thakkar
 Government Securities Regulation Act, 2007
• Purvi Visaria
 SEBI (Disclosure and Investor Protection) Guidelines, 2000
• Yash Thakkar, Amar Vora
 SEBI (Issue and Listing of Debt Securities) Regulations, 2008
• Manohar Rao
 Recent Data & Analysis, Conclusion
• Shashank Udupa

Who Are The Regulators Of
Debt Market In India???
•Reserve Bank Of India(RBI)
•Securities Exchange Board Of India (SEBI)

Involvement Of Regulators In Debt Market Of India
Reserve Bank Of India (RBI)
 Issuer Of Debt Instruments
 Determines the guidelines as to how the commercial banks can raise
money from the general public.

Involvement Of Regulators In Debt Market Of India
Securities Exchange Board Of India (SEBI)
 Secondary Role In Regulatory Aspect
 Determines the guidelines for raising money through public issues
 SEBI is also the main regulator for Mutual Funds

Government Securities Act, 2006
A security created and issued by the Government for the purpose
of raising a public loan..

Forms of Government Security
Promissory Note Bond Bearer Bond Stock Certificate

Stock
 A stock means a Government security;
 Registered in the books of the RBI for which
a stock certificate is issued; or held at the
credit of the holder in the SGL account
including the CSGL account maintained in
the Books of the RBI
 The transfer of the Government securities
shall be made in such form and in such
manner as may be prescribed.

FAQ
 When did the G S Act and the G S Regulations come into force and to which
Government securities do they apply?
 The G S Act and the G S Regulations came into force with effect from December 1, 2007.
The G S Act applies to Government securities created and issued by the Central
Government or a State Government, whether before or after the commencement of this
Act. The G S Act will apply to all Government securities created and issued even prior to
December 1, 2007.
 What does one mean by Government security in the form of Stock?
 Stock means a Government security registered in the books of RBI for which a Stock
Certificate (SC) is issued or which are held at the credit of the holder in the Subsidiary
General Ledger (SGL) account maintained in the books of RBI and transferable by
registration in the books of RBI.

Government Securities Regulations, 2007
Made by the Reserve Bank of India to carry out the purpose of the
Government Securities Act..

Regulations To The Different Forms
 Government security held in the form of Government Promissory Notes
is transferable by endorsement and delivery.
 Government securities held in the form of A Stock Certificate, SGL
account including the CSGL account & Bond Ledger Account are
transferable, before maturity, by execution of forms - III, IV & V
respectively appended to the Government Securities Regulations.
Promissory notes and stock

Bond & SGL CSGL
 A bearer bond is transferable by delivery and the person in possession
of the bond shall be deemed to be the owner of the bond.
 Government securities held in SGL account including the CSGL account
or bond ledger account shall also be transferable by execution of a deed
in an electronic form under digital signature.
Bond and SGL CSGL

FAQ
 Are Government securities eligible for creation of pledge,
hypothecation or lien?
 Yes. Pledge, hypothecation or lien may be created in respect of Government
securities held in the form of SC, BLA, SGL/CSGL and the holder of Government
securities in such forms may avail of loan facility by keeping such securities as
collateral towards loan. However, Government securities issued in the form of
GPN and bearer bonds are not eligible for creation of pledge, hypothecation or
lien.
 Whether Government securities are eligible for conversion, consolidation, sub-
division, renewal?
 Yes. Government securities are eligible for conversion from one form of holding to another
as well as consolidation, sub-division and renewal as per the terms and conditions
prescribed in the G S Regulations.

SEBI (DISCLOSURE AND INVESTOR
PROTECTION) GUIDELINES, 2000
SEBI has issued Securities and Exchange Board of India (Disclosure
and Investor Protection) Guidelines in 2000 ..

Guidelines For Issue of Debt Instruments
 The issuer making a public issue or rights issue of debt securities shall
appoint one or more debenture trustees in accordance with the provisions
of Section 117B of the Companies Act, 1956.
 The issuer making a public issue or rights issue of debt securities shall
appoint one or more Merchant Bankers.
 The issuer shall enter into an arrangement with a depository registered with
the SEBI for dematerialization of the debt securities that are proposed to be
issued to the public.
 The issuer shall give an option to the subscribers to receive the debt
securities either in the physical form or in dematerialized form

Advertisements of Public Issues
 The issuer company shall make an advertisement in an English national
Daily with wide circulation, one Hindi National newspaper and a
regional language newspaper with wide circulation at the place where
the registered office of the issuer is situated
 At the time of filing of the offer document with the Registrar of
Companies.
 Issue Opening Date, Issue Closing Date.
 And contain the minimum disclosures as per Schedule IV.

Requirement of Credit Rating
 No public issue or Rights issue shall be made unless credit rating from a
credit rating agency has been obtained.
 For a public or rights issue greater than or equal to Rs. 100 crores two
ratings from two different credit rating agencies shall be obtained.
 Where credit rating has been obtained from more than one credit rating
agencies, all credit ratings, shall be disclosed.
 All credit ratings obtained during the three years for any listed security
of the issuer company shall be disclosed in the offer document.

Requirement Of Debenture Trustee
 In case of issue of debentures having maturity more than is months, the
issuer shall appoint a Debenture Trustee.
 The name of the debenture trustee must be stated in the offer
document.
 A trust deed must be executed by the issuer company in favor of the
trustee within six months of the closure of the issue.
 Trustees of the debenture issue shall be vested with the power for
protecting the interest of the debenture holders.

Debenture Redemption Reserve (DRR)
 A company has to create Debenture Redemption Reserve (DRR) in case
of issue of debentures with maturity of more than 18 months.
 The DRR should be created in accordance with the following provisions:
• Company shall create DRR equivalent to 50% of the amount of
debenture issue before debenture redemption commences.
• Withdrawal from DRR is permitted only after 10% of the debenture
liability has been actually redeemed by the company.
• The requirement of creation of DRR shall not be applicable in case
of issue of debt instruments by infrastructure companies.

Distribution Of Dividends
 In the case of existing issuers, prior permission of the lead institution for
declaring dividend exceeding 20% or as per the loan covenants is
necessary if the issuer does not comply with institutional condition.
 In case of New companies, distribution of dividend shall require
approval of the trustees to the issue and lead institution, if any
 Dividends may be distributed out of profit of particular years only
 If residual profits after transfer to debenture redemption reserve are
inadequate to distribute reasonable dividends, issuer may distribute
dividend out of general reserve.

Other Provisions
 No company shall issue Fully Convertible Debentures having conversion
period of more than 36 months, unless conversion is made optional
with “Put” and “Call” option.
 No issue of debentures by any issuer company shall be made for
acquisition of shares or providing loan.
 Premium amount and time of conversion shall be determined by the
issuer company.
 The interest rate for debentures can be freely determined by the issuer
company.

SEBI (ISSUE AND LISTING OF DEBT SECURITIES)
REGULATIONS, 2008
Issue and Listing of Debt Securities was Implemented by SEBI & has
simplified the Debt market and given it structure..

Issue Requirements for Public Issues
 General Conditions.
 Filing of draft offer document for Public Issues.
 Electronic Issuance.
 Price Discovery through Book Building.
 Minimum Subscription.
 Listing of Debt Securities.

Continuous Listing Conditions:
 Should comply with the conditions of listing.
 Rating obtained by an issuer should be periodically reviewed.
 Change in rating should be promptly disseminated to investors.
 Debenture trustee should disclose the information to the investors and the
general public by issuing a press release.

Impact of Regulatory Changes
The Change brought about by the Existence of these Regulatory
Measures..

Impact On The Economy
 Government borrowing at market rates.
 Greater market absorption of Government securities – lower
devolvement on the Reserve Bank of India.
 Increase in the amounts being raised in the market at market
determined rates.
 Increase in trading volumes.

Future of India’s Debt Market
Regulations have had a positive impact on the market which has
moved from a credit market to a securities market..

The Future
 Greater transparency – RBI has started publishing SGL data.
 Availability of information and increased interest in the debt market –
research reports, seminars, discussions, newspaper articles, etc.
 Introduction of auctions which have contributed to development of
bidding skills among the investors. Banks are paying special attention to
this sector as profit centers.
 Increased focus on treasury management and interest rate risk
management.
 Possibility of a market responsive yield curve emerging.
 Larger amounts being raised by the corporate sector.

Regulatory Aspects Of Debt Market In India

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