The following guidelines shall be applicable to the Designated Financial Institutions (DFIs) approaching capital market for funds through an offer document.

There shall be no requirement of minimum promoters' contribution in respect of any issue by DFIs. In case any DFI proposes to make a reservation for promoters, such contribution from the promoters shall come only from actual promoters and not from directors, friends, relatives, associates, etc.

1. The DFIs may make a reservation out of the proposed issues for allotment only to their permanent employees including their Managing Director(s) or any whole time Director.

2. Such reservation shall be restricted to the number of permanent employees on the pay rolls of the DFIs as on the date of the offer document multiplied by 200 shares of Rs. 10/- each or 20 shares of Rs. 100/- each as the case may be per employee, subject to a maximum of 5% of the issue size.

3. The shares allotted under the reserved category shall be subject to a lock in for a period of 3 years.

4. In case of public issue, unsubscribed portion, if any, in the reserved category shall be added back to the public offer.

5. In case of rights issue, unsubscribed portion if any, shall lapse.

6. Where the Managing Director or the Whole Time Director represents the promoters, he may acquire securities as part of the promoters' contribution but not under the reservation made for the employees in the proposed issue

The DFIs may freely price their issues subject to the following conditions:

1.  

   1. The DFIs have 3 years' track record of consistent profitability with profits shown in their respective audited profit and loss accounts after providing for interest, tax and depreciation in 3 out of immediately preceding 5 years with profit during the last 2 years prior to the issue.

   2. Where interest charged on debts outstanding for more than three years has been taken into Profit & Loss Account, the same shall be excluded for reckoning net profit.

2.  

   1. DFI determines the issue price in consultation with the lead manager;

   2. the issue price shall be authorised by a resolution passed at a duly convened meeting of the shareholders / company's Board.

3.   The offer document shall contain justification for the premium disclosing the following:

   1. mode of calculation of the parameters including selection of any particular capitalisation rate and reasons therefor

   2. whether revaluation reserves have been taken into account for determining book value; if so, the date of revaluation and whether such revaluation was done by an approved valuer and certified by the auditors.

   3. revaluation reserves shall be excluded if such revaluation has been done within 3 years from the close of previous financial year.

   4. past performance with reference to the earnings per share and book value for the past 5 years

   5. projected earning per share / book value for the next 3 years as per DFI's own assessment.

   6. stock market data covering average high & low price of the share for the last 2 years and monthly high & low for the last 6 months, wherever applicable.

   7. all other factors which have been taken into account by the issuer for determining the premium.

The offer document of the DFI shall contain specific disclosures in respect of the following:

1. the present equity and equity after conversion in case of FCDs / PCDs;

2. actual Debt Equity Ratio (DER) vis-à-vis the desirable DER of 12:1.

3. Notional Debt Service Coverage Ratio (NDSCR) vis-a-vis the desirable minimum ratio of 1.2 to be maintained for each year.

   Explanation:

   1.  

      1. NDSCR in any year would be the ratio of 2 numbers where the numerator is the sum of net profit after tax, interest on loans, non-cash profits like depreciation and repayments received out of re-lending;

      2. While the denominator is the sum of interest on borrowings, principal installments on loans to be repaid and the apportioned principal installments during the year on debentures

   2. While the DFI may have the discretion to make its own apportionment, a minimum of 10% of redemption value shall be apportioned each year.

   3. In the case of PCDs/FCDs convertible beyond 18 months and optional at the hands of debenture holders, at least 50% of the debenture value shall be reckoned as probable redeemable debt and apportioned accordingly.

4. servicing behaviour on existing debentures, payment of interest or principal on due dates on term loans, debentures, bonds and fixed deposits;

5. outstanding principal or interest or lease rentals, etc. due from borrowing companies.

6. 1. the assets representing "loan and other assistance" portfolios may be classified into four broad groups as Standard Assets, Sub-standard Assets, Doubtful Assets and Loss Assets, and provisions made accordingly, as specified by the Reserve Bank of India.

   2. the accounting policies and the aggregate of provisions made for Bad & Doubtful Debts.

   3. the classification of assets and the provisioning for bad and doubtful debts has been duly certified by the statutory auditors of the DFIs

1. Credit rating of debentures or bonds shall be compulsory, if conversion or redemption, falls after 18 months.

2.  

   1. Premium amount on conversion, time of conversion, in stages, if any, shall be pre-determined and stated in the offer document.

   2. Redemption amount, period of maturity, yield on redemption for the PCDs / NCDs shall be indicated in the offer document.

3.  

   1. Issue of debentures / bonds with maturity of 18 months or less are exempt from the requirement of appointment of Trustee.

   2. In case of debenture / bonds with maturity beyond 18 months, a trustee or an agent, by whatever name called shall be appointed to take care of the interest of debenture / bond holders irrespective of whether or not the debentures / bonds are secured.

   3. Where the debentures / bonds are unsecured, the issuing DFI, incorporated as companies, shall ensure compliance with the provisions of the Companies (Acceptance of Deposits) Rules, 1975, as unsecured debentures / bonds are treated as "deposits" for purposes of these rules.

   4. The name of the trustee / agent shall be stated in the offer document and the trust deed or any other documents for the purpose shall be executed within six months of the closure of the issue.

4.  

   1. Any conversion in part or whole of the debentures shall be optional at the hands of the debenture holder, if the conversion takes place after 18 months from the date of allotment.

   2. In case of debentures with conversion period beyond 36 months, the issuer designated DFI may exercise call option provided disclosure to this effect has been made in the offer document.

5. The interest rate for the debentures shall be freely determinable by the issuer DFI.

6. The discount on the non-convertible portion of the PCD, where arrangements for their buy-back have been made and the procedure for their purchase on spot trading basis shall be disclosed in the offer document.

1. In case non-convertible portion of PCDs or Non Convertible Bonds / Debentures are to be rolled over with or without change in the interest rate(s), an option shall be given to those debenture / bond holders, who desire to withdraw from the scheme.

2. Roll over may be given effect to only in cases, where debenture / bond holders have sent their positive consent and not on the basis of the non-receipt of their negative reply.

3. Before roll over of any non-convertible bonds or debentures or non-convertible portion of the PCDs, fresh credit rating shall be obtained within a period of six months prior to the due date for redemption and communicated to the bond / debenture holders before roll over.

4. The letter of option regarding roll over shall be filed containing disclosure with regard to the credit rating, bond / debenture holder resolution, option for conversion and such other terms which the Board may stipulate from time to time

1. 12.7.1 Trustees to the debenture / bond issue shall be vested with the requisite powers for protecting the interest of bond / debenture holders including a right to appoint a nominee director on the Board of the DFI in consultation with other institutional debentureholders in the event of default and such events of defaults should be specified in the offer document. Provided that the right to appoint a nominee on the Board of the DFIs may not be insisted upon in cases where the composition of the Board of such DFI is determined by the statute incorporating such DFI.

2. Trustees shall obtain a certificate annually from the DFI's auditors in respect of maintenance of DER and NDSCR as per the norms mentioned in Clause 12.4.1 (b & c) and with regard to provisioning as per Clause 12.4.1 (f) above. Provided that if a DFI fails to meet such criteria, no dividend shall be declared by such DFI for the relevant year except with the approval of the trustees and the rate of dividend shall not exceed 10%.

DFI issuing any new financial instruments such as Deep Discount Bonds, Debentures with Warrants, Secured Premium Notes, etc., shall make adequate disclosures, more particularly relating to the terms and conditions, redemption, security, conversion and any other relevant features of such instruments

The issuer DFI shall forward a certificate duly signed by itself and duly counter-signed by its statutory auditor or by a company secretary in practice to the effect that the terms and conditions for issue of bonus shares as laid down below have been complied with:

1. The bonus issue is made out of free reserves built out of the genuine profits or share premium collected in cash only;

2. Reserves created by revaluation or sale of fixed assets are not capitalised.

3. Any special reserve created for the purpose of seeking tax benefits, capital reserves created as a result of sale of assets, any reserve created without accrual of cash resources and any other reserve not being in the nature of free reserves, even though such reserves cannot be capitalised, can be considered as free reserve for the purpose of calculation of residual reserves only.

4. All contingent liabilities disclosed in the audited accounts, which have a bearing on the net profits, shall be taken into account in the calculation of the residual reserves;

5. The residual reserves after the proposed capitalisation shall be at least 40 percent of the increased paid-up capital.

6. 30 per cent of the average profits before tax of the DFI for the previous three years shall yield a rate of dividend on the expanded capital base of the DFI at 10%.

7. The DFI has not failed in the maintenance of required DER, NDSCR during the last 3 years.

8. No bonus issue shall be made -

   1. in lieu of dividend;

   2. unless the partly-paid shares, if any, are fullypaid-up;

   3. if there is default in payment of interest or principal in respect of fixed deposits and interest on existing debentures / bonds or principal on redemption thereof; and

   4. if there is default in payment of statutory dues of the employees such as contribution to provident fund, gratuity, bonus etc.

9. Any proposal for issue of bonus shall be given effect to within a period of six months from the date of approval of such proposal by the Board of the DFI or, the general body, as the case may be, whichever is later

10. The shareholder shall be informed about the ability of the DFI about the estimated rate of dividend payable by the DFI during the year or the next following year after issue of bonus shares.

11. 1. No DFI shall, pending conversion of FCDs/PCDs, issue any shares by way of rights or bonus unless similar benefit is extended to the holders of such FCDs/PCDs through reservation of shares in proportion to such convertible part of FCDs/PCDs falling due for conversion within a period of 12 months from the date of rights / bonus issue.

    2. The shares so reserved may be issued at the time of such conversions on the same terms on which the rights or bonus issues were made.

1. Where a DFI's shareholding is held by various merchant bankers, the appointment of any one of them as a lead manager shall be on the basis of least shareholding.>

2. Subscription list for public issues shall be kept open for minimum of at least 3 working days and maximum 21 working days and the same shall be disclosed in the offer document.

3. Rights issues shall be kept open for a minimum of 15 days but not exceeding 60 days.

4. 1. The prospectus shall specify the minimum and maximum target amount proposed to be raised through the issue.

   2. The maximum target amount shall not exceed twice the minimum target.

5.  

   1. The requirement as to the minimum subscription of 90% applicable to the issues made by companies shall not apply to an issue made by DFI

   2. DFI is free to retain any amount received by it even if it is less than the minimum target amount.

6. Where in terms of the consent issued by the Controller of Capital Issues, the price / time of conversion of PCDs/FCDs is to be determined at a later date by the Controller, such price and the timing of conversion shall be determined at a general meeting of the shareholders subject to- the consent of the holders of PCDs / FCDs for the conversion terms shall be obtained individually and conversion shall be given effect to only if the concerned debenture-holders send their positive consent and not on the basis of non-receipt of their negative reply; and

7. such holders of debentures, who do not give such consent, shall be given an option to get the convertible portion of debentures redeemed or repurchased by the DFI at a price, which shall not be less than the face value of the debentures.

8. Where the consent from the Controller of Capital Issues stipulates a cap price for conversion of FCDs / PCDs and the cap price has been disclosed to the investors before subscription is made, the Board of the DFI may determine the price at which the debentures may be converted and in such cases an option may not be given to debenture holders.

9. The provisions of the Companies Act, 1956 and other applicable laws / listing requirements of the stock exchange, etc., wherever applicable, shall be complied with by the DFIs in connection with issue of shares, debentures and bonds etc.

DFIs may utilise the moneys raised by them out of the public issues of debt instruments before allotment and/or listing of the instruments, provided that:

1. the DFI pays interest to the investors from a date not later than the date from which such permission to utilize the funds is granted;

2. the DFI undertakes to refund the entire money to the investors in the event of its inability to obtain listing permission from any of the stock exchanges where application for listing of such instruments has been made; and

3. the DFI has complied with the provisions of the Companies Act, 1956 wherever applicable.

1. This Chapter shall apply to issues of debt securities to be made by public sector banks, scheduled commercial banks and public financial institutions.

2. Unless otherwise specified in this Chapter, the provisions of these Guidelines relating to public issues shall apply in respect of such issues.

1. A public sector bank, scheduled commercial bank or public financial institution proposing to issue a shelf prospectus shall file a draft shelf prospectus with the Board.

2. Where a draft shelf prospectus is filed with the Board, the provisions of Chapter V of these Guidelines shall apply as if it were a draft prospectus filed under the above clause

3. The shelf prospectus shall, in addition to other requisite disclosures as per these Guidelines, also disclose the aggregate amount proposed to be raised through all the stages of offers of securities made under the shelf prospectus.

4. The observation letter issued by the Board shall be valid for a period of 365 days from the date of issuance.

1. A public sector bank, scheduled commercial bank or public financial institution shall file the shelf prospectus after incorporating the updations in terms of information memorandum in respect of the second or any subsequent offer of securities with the Board.

2. The shelf prospectus as updated in terms of Clause 12A.3.1 shall be uploaded on the website of SEBI and on the website of the lead manager.

3. The public sector bank, scheduled commercial bank or public financial institution shall open the particular stage of offer of securities after filing the information memorandum/shelf prospectus as updated in terms of Clause 12A.3.1 with the Registrar of Companies and with the Board.”