INDIA Trends and Developments Contributed by: Tirthankar Datta, JSA Advocates & Solicitors
issuers (including regulated entities like NBFCs, hous - ing finance companies, insurers and REITs) and sup - ports smoother access to the corporate bond market. Initially, SEBI’s market mechanism framework required specified large borrowers (aggregate bank credit exposure above INR10,000 crore) to raise a portion of incremental borrowing from non-bank sources (capital markets) rather than banks, to encourage a deepening of the bond market. However, there was strong push - back from the industry as this curbed the flexibility of treasury teams of Indian companies. Effective as of 1 January 2026, SEBI rolled back and repealed the market mechanism rule, which evidences a reliance by regulators on market forces rather than artificially mandating a move to the debt capital markets. Incentives in public bond issues, which were previ - ously prohibited, have now been permitted and the regulations have been amended to specifically permit incentives to specified investor categories in the form of higher coupons, or discounts of the issue price. SEBI has also made amendments introducing a lower issue size threshold of INR20 crore (previously INR50 crore) for private placements of debt securities or municipal debt, which may also choose to access the electronic book building platform (EBP). All munici - pal debt securities issues must be routed through the EBP platform. Issuers may (at their option) use EBP for the private placement of Securitised Debt Instru - ments, Commercial Papers and Certificates of Depos - it; REITs, small and medium REITs, and infrastructure investment trusts may use EBP for private placement of their units. The anchor investor portion is subject to specified thresholds linked to the instrument rating. SEBI has also launch a centralised, publicly acces - sible database for corporate bonds issued in India, called “Bond Central”. This website acts as a single, authentic information repository with issuer, instru - ment and trading-related data, hosted in co-ordination with stock exchanges and depositories, and is acces - sible free of cost to the public and market participants. Guarantee regulations liberalised The RBI has notified the Foreign Exchange Manage - ment (Guarantees) Regulations, 2026, which replace
the earlier regime with a principle-based regime, per - mitting resident entities to give or obtain cross-border guarantees so long as the underlying transaction is FEMA-compliant and borrowing/lending eligibility norms are met. For private credit financings, this wid - ens structuring flexibility, which will now not be limited to guarantees by a limited range of eligible non-resi - dent entities, and the underlying debt instruments in respect of such guarantees no longer need a minimum average maturity of three years. NBFCs: revamped co-lending regulations The RBI has introduced a major revamp to co-lending regulations, opening up new business opportunities for non-banking financial companies, which can have arrangements with banks and lead to a growth in their loan books. The previous regulations were limited to priority sector lending. This is seen as an opportunity for NBFCs to partner and leverage the higher client acquisition capability of banks due to the diversity in product offering, including deposits and banking rela - tionships of the bank. Regulatory arbitrage limited for bank-owned NBFCs A major market for NBFCs was that of financing non- bankable end uses, such as the acquisition of shares, due to the regulatory arbitrage between banks and NBFCs, which left a gap in the market to be filled in by NBFCs (and more recently by private credit funds). In December 2025, the RBI issued a circular that appears to have restricted the ability of NBFCs that are a group company of scheduled commercial banks in India to lend for non-bankable end uses, such as financing promoters’ contributions and acquisitions of land. The RBI appears to have closed this regulatory arbitrage that was available to bank groups that also have an NBFC licensed entity. New categories of alternative investment funds SEBI has modified the regulations on AIFs and created an accredited investors only fund (which now brings large value funds within its framework). The minimum threshold for large value funds has been reduced from INR70 crore to INR25 crore. Regulatory relaxations have also been granted for Accredited Investor Only Funds, including:
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