Tightening investment norms, the Reserve Bank of India on Friday directed banks not to invest in non-convertible debenture (NCD) of corporates unless they disclose the purpose for which the funds are being raised.

RBI notification

“While investing in such instruments banks should be guided by the extant prudential guidelines in force, ensure that the issuer has disclosed the purpose for which the NCDs are being issued,” RBI said in a notification.

The central bank further said that in the case of NBFCs raising funds through NCDs, lenders would only be allowed to invest in those instruments for purposes eligible for bank finance.

Non-convertible debentures mean a debt instrument issued by a corporate (including NBFCs) with original or initial maturity up to one year and issued by way of private placement.

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