SEBI proposes incentives for certain investor categories in public debt issues to encourage retail participation

Securities and Exchange Board of India (SEBI) is planning to allow debt issuers to offer incentives in public issues to some investor categories, including senior citizens, women and retail subscribers, to encourage greater retail participation in the bond market.

This comes after public debt issues fell to ₹8,149 crore in the financial year 2024-25 (FY25) from ₹19,168 crore in FY24, according to SEBI’s annual report.

The markets regulator, in a consultation paper, has proposed to amend Regulation 31 of the SEBI (Issue and Listing of Non-Convertible Securities) Regulations, 2021, which prohibits any person connected with an issue from offering incentives, directly or indirectly, in cash, kind, or services, except for legitimate fees or commissions.

SEBI’s proposal aims to allow issuers to offer a higher coupon rate or a discount to the issue price for certain investor categories. It suggested that issuers can be permitted to offer such incentives at their discretion as long as relevant details are disclosed directly in the offer document. 

The incentives would be applicable only to original allottees and would not transfer if the bonds are sold (or transferred) later. 

"It is proposed to permit issuers to offer incentives in the form of higher coupon rate or discount to the issue price to certain categories of allottees like senior citizens, women, armed forces personnel (viz. serving defence personnel, ex-servicemen and widows of ex-servicemen) and retail subscribers to encourage retail participation in debt securities, while providing a fillip to the number of public issuances in the debt market," SEBI said.

How will this be implemented?

For the implementation of these incentives, SEBI suggests adding a provision to Regulation 31, which will allow issuers to offer higher coupon rates or issue price discounts to eligible investors.

SEBI noted that similar incentives already exist in other financial sectors, like higher interest rates on fixed deposits for senior citizens and higher rates for women depositors offered by some NFBCs.

In the equity market, offer-for-sale (OFS) mechanisms allow promoters to give discounts to retail investors. Such incentives exist in other sectors as well, like airlines, where special discounts are offered to armed forces personnel. 

SEBI has invited public comments on these proposals until November 17.