SEBI CIRCULAR SEBI/HO/DDHS/CIR/P/2020/199

Issuance, listing and trading of Perpetual Non-Cumulative Preference Shares (PNCPS) and Innovative Perpetual Debt Instruments (IPDIs)/ Perpetual Debt Instruments (PDIs) (commonly referred to as Additional Tier 1 (AT 1) instruments)

Perpetual Non-Cumulative Preference Shares (PNCPS’) and Innovative Perpetual Debt Instruments (IPDIs) / Perpetual Debt Instruments (PDIs) (commonly referred to as AT 1 instruments) are essentially non-equity regulatory instruments, forming part of a bank’s capital, governed by Reserve Bank of India (RBI) guidelines and issued under the issuance and listing framework given under Chapter VI of the SEBI (Issue and Listing of Non-Convertible Redeemable Preference Shares) Regulations, 2013 (“NCRPS Regulations”).
These instruments have certain unique features which, inter-alia, grant the issuer (i.e. banks, in consultation with RBI) a discretion in terms of writing down the principal / interest, to skip interest payments, to make an early recall etc. without commensurate right for investors to legal recourse, even if such actions of the issuer might result in potential loss to investors.

Given the nature and contingency impact of these AT 1 instruments and the fact that full import of the discretion is available to an issuer, may not be understood in the truest form by retail individual investors, the matter was discussed in SEBI’s advisory committee on the development of corporate bond market in India viz. Corporate Bonds and Securitization Advisory Committee (CoBoSAC). Based on the recommendations of the CoBoSAC, the following shall be the additional framework related to issuance, listing and trading of PNCPS and IPDIs which are proposed to be listed :
a. Manner of Issuance:
i. The issuance of AT1 instruments shall be done mandatorily on the Electronic Book Provider (EBP) platform irrespective of the issue size in terms of SEBI circulars SEBI/HO/DDHS/CIR/P/2018/05 dated January 05, 2018 and SEBI/HO/DDHS/CIR/P/2018/122 dated August 16, 2018.
ii. “Securities” as defined in clause 1.1.8 of Schedule A of SEBI circular SEBI/HO/DDHS/CIR/P/2018/05 dated January 05, 2018, shall include:
i) Perpetual non-cumulative preference shares (PNCPS)
ii) Innovative perpetual debt instruments (IPDIs) and
iii) Perpetual debt instruments (PDIs)
b. Investors
Issuers and Stock Exchanges shall ensure that only QIBs are allowed to participate in the issuance of AT1 instruments.
c. Allotment size
The minimum allotment of AT1 instruments shall not be less than Rs.1 crore.
d. Trading lot size
The minimum trading lot size for AT1 instruments shall be Rs.1 crore.
e. Other requirements:
Issuers, in addition to making disclosures as per Schedule I of the SEBI NCRPS Regulations, shall comply with the following:
i. Disclosures as specified in Annex I.
ii. Provisions of circulars as specified in Annex II.
iii. Specific disclosures about:
a) Details of all the conditions upon which the call option will be exercised by them for AT1 instruments, in the Information /Private Placement Memorandum.
b) Risk factors, to include all the inherent features of these AT1 instruments highlighted at para 2 above.
c) Point of Non Viability (PONV) clause: The absolute right, given to the RBI, to direct a bank to write down the entire value of its outstanding AT1 instruments/bonds, if it thinks the bank has passed the Point of Non Viability (PONV), or requires a public sector capital infusion to remain a going concern.

This circular shall come into force with effect from October 12, 2020.
This Circular is issued in exercise of powers under Section 11(1) of Securities and Exchange Board of India Act, 1992 read with regulations 23(5) and 26 of the SEBI (NCRPS) Regulations.
This Circular is available on SEBI website at www.sebi.gov.in under the categories “Legal Framework” and under “Circulars”.