RBI/2009-10/287
DBOD.BP.BC.No. 69 / 21.01.002/ 2009-10
January 13, 2010
All Commercial Banks
(excluding RRBs )
Dear Sir,
Retail Issue of Subordinated Debt for Raising Tier II Capital
Please refer to our circular DBOD.No.BP.BC. 38 /21.01.002/2009-10 September 7,
2009 on ‘Issue of Subordinated Debt for Raising Tier II Capital’.
- Some banks have indicated that they would like to issue subordinated debt to
retail investors. With a view to enhancing investor education relating to risk
characteristics of regulatory capital instruments, banks issuing subordinated
debt to retail investors are advised to adhere to the following conditions:
- The requirement for specific sign-off as quoted below, from the investors for
having understood the features and risks of the instrument may be incorporated
in the common application form of the proposed debt issue.
" By making this application, I/We acknowledge that I/We have understood the
terms and conditions of the Issue of [ insert the name of the instruments being
issued ] of [ Name of The Bank ] as disclosed in the Draft Shelf Prospectus,
Shelf Prospectus and Tranche Document ".
- For floating rate instruments, banks should not use its Fixed Deposit rate as
benchmark.
- All the publicity material, application form and other communication with the
investor should clearly state in bold letters (with font size 14) how a
subordinated bond is different from fixed deposit particularly that it is not
covered by deposit insurance.
- The guidelines contained in this circular would be applicable with immediate
effect.
Yours faithfully
(B. Mahapatra)
Chief General Manager