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The National Housing Bank Act regulates the housing finance companies. It provides necessary directions regarding Housing Finance Companies issuance of NCD (Non convertible debenture)P on private placement in the public interest. Moreover, the Housing Finance Companies Issuance of NCD on Private Placement basis (NHB) Directions, 2014 is the most important and mandatory compliance which came into force on 1st April 2014.
In the below article, we would discuss about the regulations as directed by the National Housing Bank.
Before we discuss about Non Convertible Debentures issuance on private placement, let us get familiar with the following terms:
It is a debt instrument issued by a Housing Finance Company with maturity for one year or more. However, this is generally issued by way of private placement.
This is offering of non-convertible debentures to the selected subscribers by the Housing Finance Companies.
It is just an invitation to the general public which is made by a Housing Finance Companies. This is to inform people to subscribe to the securities of that Housing Finance Company through a prospectus.
Hence, Non-Convertible Debentures issuance on private placement means and includes a debt instrument issued by a Housing Finance Company with maturity for one year or more and is issued only to the selected number of subscribers by the Housing Finance Companies as may be specified by the National Housing Bank.
Please note that these regulations are applicable to every housing finance companies registered under Section 29A of the National Housing Bank Act, 1987.
The main purpose of Housing Finance Companies issuance of NCD on private placement is to deploy funds on its own balance sheet. Moreover, no housing finance company must issue non-convertible debentures to facilitate resource requests of its group entities or any parent company etc.
The eligibility criteria for issue of Non Convertible debentures on private placement must be taken care of. They are as follows:
These also include the cautions which one must keep in mind while investing into non-convertible debentures:
The minimum subscription would be Rs. 20,000 per investor.
Further, the issuance of the private placement of NCDs shall be in two separate categories, those with a maximum subscription of less than 1 crore and those with a minimum subscription of 1 crore and above per investor.
The limits and amount of issue of Non-convertible debentures are as follows:
While dealing with various clients, we came across following common queries. Have a look at them:
It is highly recommendable that the Housing Finance Companies issuance of NCD on private placement must be in dematerialized form. However, an option to issue them in physical form is also available.
HFC are not allowed to obtain Loan against the security of their own debentures. Moreover, they can not obtain it either by private placement or public issue.
A Board report is attached to every balance sheet of a company. It must be discussed in general meeting and shall include statement:
The above are the mandatory provisions by the National Housing Bank . They must be taken care by the investors after Housing Finance Companies issuance of NCD on private placement. However, the National Housing Bank may issue more clarifications from time to time. As of now, the above provisions are final and binding.
In case of more clarifications, do contact Enterslice now.
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