SEBI Updates Conditions for Reduction in Denomination of Debt Securities

Introduction

The Securities and Exchange Board of India (SEBI) has made a major change to the terms of a decrease in denomination of the debt securities and non-convertible redeemable preference shares that are issued through a private placement basis. This revision corrects some sections of the NCS Master Circular of 15 October 2025, the goal of which is to make the market more flexible without compromising the protection of investors.

The change mainly involves the eligibility of the zero-coupon debt securities to be issued at a lower face value in response to the market players feedback and changing investment pattern.

Explanation

SEBI had previously allowed issuers to issue debt securities and non-convertible redeemable preference shares with a face value of Rs. 10,000 and had certain conditions. Among the main requirements was that the securities had to be interest or dividend yielding ones that could be paid at periodic intervals with a determinable maturity and no structure.

This requirement, however, effectively locked out such instruments as zero coupon debt which do not issue periodic interest payments but is given by issuance at a discount and redemption at face value on maturity.

Market Feedback/Rationales

As noted by market participants, zero-coupon debt instruments are a widely used investment product, particularly where investors seek to achieve compounded returns without interim cash flows. Although these instruments do not carry periodic interest payments, their economic value is comparable to that of interest-bearing securities. They are commonly employed as long-term investment vehicles and as an effective means of portfolio diversification.

In recognition of this, SEBI revised the current structure so that the regulated market is fair and efficient.

Significant Change to be Introduced

SEBI has now amended the Clause 1.3 of Chapter V of NCS Master Circular to some extent. Under the revised provision:

Issuers may issue debt securities or non-convertible redeemable preference shares at a face value of Rs. 10,000 on a private placement basis on a condition that:

The instrument is either:

• A paying interest/dividend security an interest/dividend-bearing security that pays coupon or dividend on a routine basis, with a known maturity, and without any structured obligations;
• a zero coupon debt security that is neither structured nor has a maturity.

This amendment explicitly introduces the scope of reduced denomination issuance on the zero coupon debt securities that were unacceptable in the past.

Applicability and Continuity

• The rest of the terms of NCS Master Circular are not altered.
• The updated terms will be applicable to all of the issuances of debt securities of a private placement offered to be listed as of the date of the issuance of the circular.
• The stock exchanges, clearing corporations, and depositories have been instructed to make all the required measures to make the implementation and the spreading of the updated provisions smooth.

Conclusion

The move by SEBI to allow zero coupon debt note to be issued with a lowered face value of Rs. 10,000 amount is a market-adaptive and sensible regulation. Incorporating regulatory terms with current financial practices, the amendment will increase flexibility of the issuers, expand the field of participation of investors, and encourage innovation in the debt market.

The update is especially pertinent to those issuers interested in other forms of debt as well as to those investors interested in long-term, compounded-return vehicles. The market participants will be advised to look at the issuance documentation and compliance frameworks to confirm that they are in line with the revised terms of the NCS Master Circular.