SEBI's Consultation Paper: Streamlining Compliance For High Value Debt Listed Entities

In an initiative designed to balance corporate governance with pragmatic business considerations, the Securities and Exchange Board of India (SEBI) released an extensive consultation paper on October 27, 2025. Titled "Consultation Paper on Relaxation in the Threshold for Identification of High Value Debt Listed Entities (HVDLEs) and Measures Facilitating Ease of Doing Business for HVDLEs Including Provisions Relating to Related Party Transactions," the document seeks public input regarding specific reforms to the Listing Obligations and Disclosure Requirements (LODR) Regulations of 2015. These proposals emerge at a critical juncture for India's debt capital markets, where issuers, notably non-banking financial companies (NBFCs) are confronted with escalating compliance demands in the context of a shifting regulatory environment.

The paper builds upon SEBI's persistent endeavours to align governance standards across both equity and debt sectors while addressing the apprehensions of stakeholders regarding excessive regulation. By advocating for modifications to the HVDLE framework, SEBI aims to alleviate the compliance burden for a wider array of debt-listed entities without undermining investor safeguards. Stakeholders are encouraged to submit their comments by November 17, 2025, which represents a crucial opportunity for market participants to influence the final regulatory landscape.

The Evolution of Corporate Governance Norms for Debt Listed Entities

Corporate governance (CG) standards have historically constituted a fundamental aspect of SEBI's objective to promote transparency and accountability within capital markets. Initially designed for companies listed on equity markets in accordance with the LODR Regulations, these standards were subsequently expanded to encompass debt issuers in September 2021 through amendments that mandated compliance on a comply-or-explain basis until March 31, 2025. This expansion acknowledged the unique risk profiles associated with entities primarily engaged in debt issuance, which frequently lack the diversified equity ownership that necessitates rigorous oversight.

A pivotal development occurred in December 2024, when the board of SEBI sanctioned the inclusion of a dedicated Chapter VA within the LODR Regulations, specifically targeting High Value Debt Listed Entities (HVDLEs), defined as organisations with outstanding non-convertible debt securities surpassing INR 1,000 crores. Officially notified on March 28, 2025, this chapter introduced customised CG provisions, encompassing requirements for board composition and committee obligations, thereby enhancing the alignment of debt issuers with their equity counterparts. However, the stipulation of the INR 1,000 crore threshold rapidly attracted criticism from market stakeholders, who contended that it encompassed an excessive number of entities engaged in standard debt-raising activities, thereby escalating compliance costs without commensurate advantages.

Subsequent amendments to the equity capital gains regulations in December 2024 further illuminated existing discrepancies. For example, the stipulations regarding the tenures of directors, timelines for committees, and approvals for subsidiaries were revised for firms listed on equity markets, yet left HVDLEs without alignment. Contributions from stakeholders, notably the Finance Industry Development Council (FIDC) which serves as a representative entity for Non-Banking Financial Companies (NBFCs) underscored the imperative for recalibration. These perspectives highlighted that private placements ranging from INR 200-500 crores represent standard treasury operations for NBFCs; however, the current threshold disproportionately encumbered them, diverting essential resources from fundamental operations.

The board meeting of SEBI in September 2025 sanctioned preliminary amendments to the rules governing related party transactions (RPT) under LODR, indicating a forward-thinking approach. The ongoing consultation document continues this momentum by proposing a comprehensive five-pronged review: elevating the identification threshold for HVDLEs, refining the structures of boards and committees, simplifying compliance requirements for subsidiaries, and revamping disclosures related to RPTs. These proposed modifications seek to alleviate the regulatory arbitrage present between equity and debt sectors while fostering an improved ease of doing business (EODB).

Proposal 1: Raising the Threshold for HVDLE Identification

At the core of the consultation lies Proposal I, which aims to enhance the threshold for non-convertible debt classification as HVDLEs from INR 1,000 crores to INR 5,000 crores. This modification is a direct response to stakeholder feedback indicating that the existing threshold captures entities involved in low-risk, frequent debt issuances, including NBFCs that manage asset-liability mismatches through private placements.

A thorough background analysis indicates that as of June 30, 2025, there were 137 entities exclusively listed on the debt market that met the HVDLE criteria under the INR 1,000 crore threshold, which included 20 public sector undertakings (PSUs). Elevating the threshold to INR 5,000 crores would reduce this cohort to merely 48 entities (15 PSUs), representing a significant 65% decrease. Advocates of this proposal contend that it sharpens the focus on genuinely "high-value" issuers those possessing systemic importance, while relieving smaller entities from the stringent requirements of Chapter VA, which includes the necessity for independent directors and specialised committees.

Empirical market data substantiates this rationale. The leading 50 NBFCs are known to raise between INR 10,000 and 40,000 crores on an annual basis, with the current INR 1,000 crore threshold representing only 2-10% of their total borrowings in the prevailing climate. Furthermore, it is noteworthy that 90-95% of private debt issuances are directed towards qualified institutional buyers (QIBs) such as banks, mutual funds, and insurance companies, which are already protected through debenture trustees and security provisions in accordance with SEBI's Issue and Listing of Non-Convertible Securities Regulations, 2021. For these issuers, debenture trustees offer an added fiduciary level, overseeing covenant adherence and executing post-default measures, thus rendering redundant the duplicative corporate governance norms.

SEBI solicits feedback regarding the appropriateness of this proposed increase, particularly in terms of its implications for extending compliance requirements, such as annual secretarial audits, to a reduced number of entities. A pivotal inquiry examines whether the suggested threshold achieves an adequate equilibrium between investor protection and the EODB, especially for issuers lacking publicly listed equity components. Additionally, there is a request for perspectives on whether private placements below the INR 5,000 crore threshold should be exempted, considering their non-systemic characteristics.

This proposal has the potential to stimulate greater participation in the debt market by alleviating the burdens associated with a "one-size-fits-all" approach, which may lead to reduced issuance costs and foster the occurrence of more frequent, smaller fundraising efforts.

Proposal 2: Streamlining Board and Committee Requirements for Enhanced EODB

Building upon the relaxation of thresholds, Proposal II strategically addresses EODB measures that extend beyond RPTs, emphasising the composition of the board, the approval process for directors, and the timelines for committee activities. These measures harmonise HVDLE norms with recent amendments in equity, promoting equity without imposing excessive regulations.

A significant modification entails the redefinition of "material subsidiary" within the context of Regulation 62L. At present, subsidiaries that contribute 10% or more to either income or net worth are classified as material; the proposal seeks to replace "income" with "turnover" to better reflect equity regulations, more accurately encompassing revenue-generating subsidiaries. This change is intended to avert circumvention through income manipulation while simplifying evaluative processes.

In relation to board directors, Regulation 62D is amended to elucidate the tenures of non-executive directors. No HVDLE is permitted to appoint an individual aged 75 years or older without a special resolution, which must be accompanied by a comprehensive explanatory statement justifying the appointment. Furthermore, an additional safeguard is instituted, requiring verification of compliance at the time of appointment or re-appointment, thereby ensuring adherence to the stipulated five-year term limits following the age of 75. This approach addresses risks associated with longevity while accommodating experienced leadership.

Temporal exclusions concerning regulatory approvals are prominently featured. Regulation 62E proposes the exemption of delays associated with governmental or statutory approvals such as those mandated by financial sector regulators from the timelines for director appointments. Likewise, nominee directors appointed by these regulators or by courts/tribunals are exempt from requiring shareholder approval, thereby acknowledging their oversight responsibilities in the public interest. This exemption, derived from established equity precedents, has the potential to expedite board formations, which is crucial for debt issuers navigating intricate approval processes.

Committee mandates receive commensurate emphasis. The Audit, Nomination and Remuneration, Stakeholder Relationship, and Risk Management Committees are now required to address vacancies within a three-month period, an extension from the previously shorter equity timelines, thereby providing necessary flexibility amidst talent shortages. Recommendations directed towards shareholders now explicitly incorporate "financial year" drafting modifications across Regulations 62D, 62I, and 62J, thereby standardising reporting cycles.

With respect to independent directors, Regulation 62H eliminates the re-appointment stipulations in the event that a vacancy arises due to resignation, provided that the HVDLE continues to uphold overall independence quotas. This flexibility recognises the practical difficulties associated with talent acquisition without compromising board diversity.

Compliance requirements for subsidiaries are liberalised under Regulation 62I, exempting them from obtaining shareholder approval for asset sales to other subsidiaries if such transactions are deemed non-material. Alignments with the IBC allow for an additional three-month period for filling vacancies during corporate insolvency resolution processes (CIRP), thereby ensuring consistency with the LODR. Other corporate governance adjustments replace the 21-day timelines for periodic compliance reports with flexible durations determined by the board, thus accommodating the unique needs of individual entities.

These collective measures serve to diminish administrative friction, enabling debt issuers to prioritise capital allocation over procedural impediments.

Proposal 3: Facilitating Related Party Transactions with Balanced Oversight

Proposal III specifically focuses on RPTs, which have consistently served as a significant source of conflict in matters of interest. It proposes for the alignment of HVDLE provisions with Regulation 23 of the LODR through the establishment of cross-references, while simultaneously preserving the requirements for debenture trustee and NOC concerning materiality thresholds.

Noteworthy relaxations entail the elimination of half-yearly RPT disclosures from periodic compliance reports, which are instead incorporated into secretarial audits. The mandates for secretarial audit and compliance reports concerning RPT auditors are also curtailed, thereby enhancing the efficiency of oversight. The cross-referencing within Regulation 23 continues to safeguard holder protections while simultaneously alleviating the burdens imposed on issuers.

The consultation questions investigate the sufficiency of these amendments, particularly the ramifications of harmonisation on transparency. Stakeholders are solicited to provide their perspectives on whether the exemption of half-yearly filings is adequate, considering the rigor of annual audits, and whether the retention of debenture trustee NOCs sufficiently protects the interests of bondholders.

These reforms concerning RPTs highlight the nuanced strategy adopted by SEBI: maintaining the integrity of arm's-length transactions while minimising unnecessary filings, thereby fostering trust without impeding transactional activities.

Broader Implications for the Debt Market Ecosystem

The effects of the proposals extend well beyond mere compliance cost reductions. Through the contraction of the HVDLE universe, SEBI has the potential to revitalise private debt markets, wherein issuances frequently evade public scrutiny yet contribute significantly to economic expansion. NBFCs, which are predominant issuers of debt, are poised to benefit from diminished expenditures on independent directors and committee specialists, costs that escalate with the frequency of issuances.

The maintenance of investor confidence remains critically important. An elevated alignment with equity standards signifies a maturation in debt governance, which may subsequently attract global capital to India's bond market, valued at over INR 50 lakh crore. However, certain risks persist: a more lenient threshold could compromise oversight for mid-tier issuers, although protective measures such as debenture trustees serve to alleviate this concern.

Annexure A presents modifications to the EODB related to RPTs, whereas Annexure B outlines broader facilitative measures, offering detailed trackers for stakeholder feedback.

Conclusion: A Call for Collaborative Refinement

The consultation document released by SEBI in October 2025 signifies a deliberate shift towards a regulatory framework that is commensurate with the associated risks, enhancing governance. By raising the threshold for HVDLE and meticulously adjusting compliance requirements, it promises the emergence of a more responsive debt market, free from the constraints of historical discrepancies. As the deadline looms, it is imperative for issuers, advisors, and investors to participate proactively, submissions through SEBI's online portal have the potential to transform these reforms into sustainable facilitators of market depth.

In a context characterised by swift financial advancements, such ongoing discourse serves as a testament to SEBI's dedication to progressive adaptation rather than mere enforcement. The resulting regulatory framework could not only streamline routine operations but also enhance India's position as a competitive player in the global debt market.

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