Grandfathering the Wrong Deterrent: SEBI’s Regulation 62A Proposal and the Unlisted Debt Market

[Amogh is a student at West Bengal National University of Juridicial Sciences.]

On 10 August 2026, the Department of Debt and Hybrid Securities of the Securities and Exchange Board of India (SEBI) released a consultation paper proposing, alongside an expansion of ISIN limits for privately placed debt, to dispense with the obligation on an issuer entering the listed debt market for the first time to also list its outstanding unlisted non-convertible debt securities (NCDs) issued on or after 1 January 2024. The evidentiary basis is a single data series: listed debt as a proportion of total debt issuance has slipped from 80.81% in September 2023 to 76.55% in June 2026. From this SEBI infers that the retrospective clean-up under Regulation 62A(3) of the Securities and Exchange Board of India (Listing Obligations and Disclosure Requirements) Regulations 2015 is discouraging first-time listing.

The inference is doing an enormous amount of work, and it does not bear it. The deterrent to entry is not the one-off clean-up but the permanent forward lock-in in Regulation 62A. By excising the former and preserving the latter, SEBI relieves the smaller cost while leaving the larger one intact, and pays for that relief with a chronology-dependent regime whose draft text reintroduces precisely the retrospectivity it claims to abolish.

The Bright Line of 2023

Regulation 62A was inserted by the Securities and Exchange Board of India (Listing Obligations and Disclosure Requirements) (Fourth Amendment) Regulations 2023 with effect from 1 January 2024. It operates in three movements. Sub-regulation (1) requires a debt-listed entity to list every NCD issued on or after that date. Sub-regulation (2) permits, but does not compel, listing of pre-2024 unlisted paper. Sub-regulation (3) requires an entity listing NCDs on or after 1 January 2024 to bring all outstanding unlisted NCDs issued from that date onto the exchange within three months. A narrow set of exemptions survives for capital-gains bonds under Section 54EC of the Income-tax Act 1961 and for issuances mandated by a court, tribunal or financial sector regulator.

The board memorandum preceding the amendment identified the mischief with some care: parallel listed and unlisted issuance by the same issuer produced selective disclosure of terms, distorted price discovery for the listed paper, and left investors unable to distinguish between two ISINs of the same name. The design response was categorical. Once an issuer stepped inside the listed perimeter, everything it owed stepped in with it, and, as commentators noted at the time, an issuer that never listed retained complete freedom to stay outside. Whatever its costs, the rule generated a clean informational signal: debt-listed status was a warranty of completeness.

Which Sub-Regulation is Actually Deterring Entry

An unlisted issuer contemplating its first listed issuance faces two distinct prices. The first is a one-off transaction cost, being the expense of listing already-subscribed paper, the ISIN headroom it consumes under Chapter VIII of the NCS Master Circular, and the covenant-monitoring systems it forces into existence. The second is a perpetual constraint: from that moment, the issuer may never again raise NCDs in unlisted form. For a frequent issuer such as a non-banking financial company, the second price is an order of magnitude larger than the first, and it is the one that survives the proposal untouched.

SEBI’s own regulatory history confirms as much. In February 2025 it issued a consultation paper acknowledging that the pool of unlisted debt available to Category II Alternative Investment Funds was shrinking, and by notification dated 21 May 2025 it amended the explanation to Regulation 17(a) of the Securities and Exchange Board of India (Alternative Investment Funds) Regulations 2012 so that listed debt rated ‘A’ or below counts as unlisted for the minimum investment condition. That contraction was caused by the forward mandate in Regulation 62A(1), not by the clean-up in Regulation 62A(3). SEBI has now twice legislated around Regulation 62A(1) without legislating on it, first by redefining what counts as unlisted for fund managers and now by forgiving legacy paper for issuers.

The causal claim is fragile for a second reason. Regulation 62A(3) is operative only against issuers who actually list; on issuers who never list it acts, at most, as an anticipated cost. Attributing a decline of roughly four percentage points across eleven quarters to a provision that binds only the entering cohort requires ruling out the growth of private credit, changes in the funding mix of NBFCs, and sustained fund-side demand for unlisted paper. The consultation paper does not attempt that exercise. It offers a coincidence of dates and calls it a possible reason.

The Price of the Cure: A Chronology-Dependent Perimeter

The proposal replaces a fixed calendar cut-off with a dynamic event cut-off tied to the issuer’s own first listing. SEBI’s comparative table candidly describes the result as a dual-track system: entities that listed before the amendment remain governed by the rule as it stood, while those listing afterwards enjoy permanent grandfathering of everything issued earlier.

The consequence is that two issuers with identical unlisted debentures issued in 2024 will carry different obligations depending solely on whether their first listing fell before or after the gazette date. That distinction bears no relationship to the information asymmetry the regulation was designed to cure, and it is difficult to reconcile with the intelligible-differentia requirement that ordinarily disciplines classification in delegated legislation. More seriously, it destroys the signal. An investor examining a debt-listed entity today may infer that its post-2023 NCDs are all on the exchange; that inference was the principal gain claimed for Regulation 62A. After the amendment, it will depend on a listing date the investor cannot readily observe, and the answer will differ between issuers for reasons unconnected to their disclosure practices.

The instability extends to interpretation already given. In its informal guidance to Ananya Finance dated 22 July 2026, SEBI held that where a debt-listed entity assumes obligations under outstanding unlisted NCDs through a business transfer, Regulation 62A must be applied holistically notwithstanding the absence of any fresh issuance, ISIN or debenture certificate. Under a dynamic cut-off, whether assumed legacy paper must be listed will turn on the transferee’s listing chronology rather than the substance of the transaction, and the anti-avoidance reasoning that guidance rests on becomes considerably harder to sustain.

Drafting that Undoes the Reform

The proposed text of Regulation 62A(1) adds a trigger referable to gazette publication of the 2026 amendment and inserts the word subsequent, yet retains the reference to NCDs proposed to be issued on or after 1 January 2024. Read literally, an entity first listing in 2027 must list all subsequent NCDs proposed to be issued on or after a date four years anterior to its own trigger event. If subsequent is read as subsequent to first listing, the retained date is otiose and should go; if it is not so read, retrospectivity returns through the back door. The accompanying saving clause is no better, since it can be read as extinguishing the accrued clean-up obligations of entities that listed before the amendment, an outcome squarely at odds with the dual-track design SEBI’s own table sets out. The draft circular at Annexure A is likewise unreconciled, raising the ceiling to seventeen ISINs in one clause while the very next clause still apportions fourteen.

Disclosure, not Listing

The information objective never required listing. It required disclosure, and Regulation 62A(6) already contemplates disclosure to the exchanges of the material terms of NCD issuances, including embedded options, security, coupon and tenor. A more proportionate reform would grandfather legacy unlisted paper from the listing obligation while making first listing conditional on exchange disclosure of every outstanding unlisted NCD, with continuing intimation of any covenant breach. That imposes negligible cost, consumes no ISIN headroom, requires no covenant-monitoring build-out for paper that will be redeemed in course, and preserves the categorical signal that debt-listed status once carried.

If, on the other hand, SEBI’s real target is entry deterrence, the honest course is to reopen Regulation 62A(1) itself, whether through a de minimis unlisted window or a lock-in confined to instruments of the same class, rather than compensating fund managers and forgiving issuers in turn while the operative constraint sits undisturbed. That the anti-fragmentation rationale of 2023 is simultaneously being relaxed on the ISIN side, from fourteen maturities to seventeen with a tiered unlock above Rs.15,000 crore, only sharpens the point: the 2023 settlement is being unwound on two fronts at once. It may well deserve to be. However, that case should be argued and put to consultation as such, not achieved by attrition. Comments closed on 31 August 2026. The proposal is worth pursuing, though not in its present form, and not on its present reasoning.