Secured bonds and NCDs in India

What makes a bond or NCD secured

SEBI's rules for listed debt, the Issue and Listing of Non-Convertible Securities (NCS) Regulations, 2021, define secured debt securities as those secured by a charge on assets of the issuer, or of its subsidiaries, holding company or associate companies, where the assets are worth enough to repay the principal and the interest. The charge is a legal claim on those assets. It is created in favour of a debenture trustee, which every issuer of listed debt securities must appoint, and the trustee holds it for all the bondholders of that issue.

The amount of security is set by a ratio, the security cover: the value of the charged assets divided by what is owed on the bonds. SEBI's listing rules (the LODR Regulations, regulation 54) require a listed issuer to keep 100% security cover on the principal and interest of its secured debt at all times, or a higher cover if the offer document or trust deed promises one. The issuer has to disclose the extent and nature of the security, and the cover, with its financial results.

The prospectus also says what kind of charge bondholders get. An exclusive charge gives this issue's holders sole claim on the assets named. A pari passu charge is shared equally with other lenders on the same assets. A subservient charge ranks behind lenders who already hold a charge on those assets; the bondholders are paid from the assets only after those lenders are.

What secured does not mean

Secured is a statement about your place in the queue if things go wrong, not about whether they will. It does not make a bond safe, and it is not a rating. A secured NCD of a weak issuer can default; an unsecured bond of a strong issuer may never miss a payment. The credit rating is the opinion on the chance of default, and the credit rating guide explains the scale.

Nor does 100% cover mean you get 100% back. SEBI requires every NCD prospectus to say, in its risk factors, that even where the debenture is secured to 100% of principal and interest, recovery depends on the market scenario prevalent at the time of enforcement. The assets are valued while the company is running; by the time a charge is enforced, loans may have gone bad, property may sell at a discount, and other creditors may contest the claim.

Recovery also takes time. Insolvency cases have run well past the Code's timelines, as the figures further down show.

Unsecured and subordinated NCDs

An unsecured NCD carries no charge on any asset. If the issuer fails, its holders are general creditors and are paid only from what is left after secured creditors have enforced or been paid.

Subordinated debt goes a step further: by its terms it ranks behind the issuer's senior debt, so it is repaid only after the senior creditors. A prospectus term sheet states the seniority of the instrument as senior or subordinated. In the security cover certificate that a listed issuer files every quarter, unsecured debentures and subordinated debt are reported in a column for debt not backed by any assets offered as security.

Bank capital bonds sit at the far end of this range. Additional Tier 1 bonds have no maturity and their interest can be cancelled without a default; the perpetual and AT1 bonds guide covers them.

Where secured holders rank if the issuer goes into insolvency

If a company cannot pay its debts, its creditors can take it into the corporate insolvency resolution process under the Insolvency and Bankruptcy Code, 2016 (IBC). The Code gives the process 180 days, extendable once by up to 90 days, and says it must be completed within 330 days including time spent in litigation. If no resolution plan is approved, the company goes into liquidation.

In liquidation a secured creditor has a choice under section 52 of the Code. It can give up (relinquish) its security to the liquidation estate and be paid in the order set by section 53, or it can realise the security itself under the law that governs that security. If realising the security leaves a surplus, the creditor must hand it to the liquidator; if it leaves a shortfall, the unpaid part is paid lower down the waterfall, alongside government dues.

The IBC (Amendment) Act, 2026, in force from 26 May 2026 for these sections, tightened the rules. A secured creditor that wants to realise its security must tell the liquidator and identify the asset within 14 days of the liquidation starting; otherwise its security is treated as relinquished. Where several secured creditors share an asset, realising it needs the agreement of creditors holding at least 66% of the secured claims on it. A creditor that realises its security must now hand over, out of the proceeds, amounts towards the insolvency and liquidation costs and workmen's dues, in a manner still to be specified by regulations. Only a security interest created by agreement counts; one that arises merely by operation of law does not. If a relinquished security is worth less than the debt, the creditor ranks as secured up to the value of the security and as unsecured for the rest.

Section 53(2) disregards any contract among creditors that would upset the order of the waterfall. Since the 2026 amendment, the Code makes clear that an agreement between secured creditors about which of them is paid first is not disregarded, while one that puts secured creditors ahead of workmen is.

Many NCD issuers are NBFCs, which the Code handles as financial service providers. Under a 2019 government notification, NBFCs, including housing finance companies, with an asset size of ₹500 crore or more can be taken into insolvency only on an application by the regulator, the Reserve Bank of India, under special rules for financial service providers. Bondholders cannot start that process themselves.

What creditors have recovered so far

The Insolvency and Bankruptcy Board of India (IBBI) publishes outcomes every quarter. The figures below are for all creditors together, banks included, not for retail bondholders on their own, and a secured NCD holder's result depends on the charge and the case.

Liquidation tends to recover very little. In the 1,757 liquidations that had closed with a final report by June 2026, secured creditors that realised their own security received about 6.0% of their admitted claims; the rank of workmen's dues and secured creditors that gave up their security received about 4.2%; and unsecured financial creditors about 0.6%. The IBBI notes that around 78% of the cases ending in liquidation had earlier been with the BIFR or were defunct, with assets on average worth 5% of their debt, so these companies are weaker than a typical NCD issuer.

Resolutions of finance companies have done better. Four financial service providers have been resolved under the Code. The largest, Dewan Housing Finance Corporation (DHFL), was resolved with a plan from Piramal Capital & Housing Finance, and its financial creditors realised 42.60% of their admitted claims. The corporate bonds guide covers DHFL, IL&FS and the 2025 TruCap NCD default as case studies.

What happens when an NCD defaults

Under SEBI's rules a default is the failure to pay interest or principal in full on the due date, counted at the first delay, and it is reckoned for each ISIN separately. The issuer must tell the stock exchange within one working day of a payment falling due whether it has paid.

The debenture trustee then has to act. SEBI's master circular for debenture trustees requires it to send holders a notice within three days of the default and to hold a meeting of holders within 30 days, unless the default is cured before the meeting. For NCDs sold in a public issue, the notice does not ask holders to consent to enforcing the security and no meeting is needed for enforcement, because the Debenture Trustees Regulations exempt public issues from that step. If the issuer's other lenders propose a restructuring under the RBI's 2019 framework for stressed assets, the trustee can sign the inter-creditor agreement with the consent of holders owning at least 75% of the debt by value and 60% by number in that ISIN, and the plan's total timeline is capped at 365 days from the start of the RBI review period.

Enforcement costs money, so every issuer deposits 0.01% of its issue size, up to ₹25 lakh, with the stock exchange in a recovery expense fund. The trustee can draw on it for legal and enforcement costs after a default. The trustee can also nominate a director to the issuer's board after two consecutive interest defaults, a failure to create the promised security, or a default on redemption.

Holders can follow a default through the trustee. Its website must show, for each issue, the payment status, rating changes, the latest security cover certificate, any breaches and defaults with the action taken, and investor complaints. Once a bond in default has matured, the trustee must also report its payment status and later developments, such as a restructuring or an insolvency filing, to the exchanges and depositories.

How to read the security section of a prospectus

Take Muthoot Fincorp's Tranche V public issue of September 2026, one of the issues on our NCD issue tracker, which records whether each issue is secured, unsecured or mixed. Its prospectus describes the NCDs as secured by a subservient charge, shared with existing secured creditors, on the company's standard loan receivables and current assets, present and future. The charge is held by the debenture trustee for all the NCD holders of the issue equally.

The risk factors spell out what that means. The realisable value of the security may be lower than the amount outstanding on the NCDs. The company's other lenders rank equally with or ahead of the NCD holders. Claims preferred by law, such as taxes, rank ahead. And as an NBFC making a public issue, the company does not have to keep a debenture redemption reserve, a separate reserve some other issuers must set aside for repayment.

Checks before you buy a secured NCD

Each check below can be done from the prospectus or information memorandum, the rating agency's rationale and the debenture trustee's website. The how to invest in bonds guide covers where to buy.

• Read the credit rating and the agency's rationale first. Security affects what you might recover; the rating speaks to whether you will need to.
• Find the nature of the charge. A subservient charge ranks behind existing lenders on the same assets; a pari passu charge shares them equally.
• Check what the assets are. Loan receivables of a lending company lose value as the loans go bad, which tends to happen when the issuer is in trouble.
• Note the promised security cover and look up the latest security cover certificate on the trustee's or the exchange's website.
• Check the seniority line in the term sheet: senior or subordinated.
• Identify the debenture trustee and bookmark its disclosure page for the issue.
• Size the position as if recovery could be partial and slow; resolved insolvency cases have averaged 757 days, on IBBI figures.