Quantitative Thresholds, Qualitative Gaps: SEBI’s HVDLE Framework in Perspective
SEBI has issued a new consultation paper proposing significant amendments to the regulatory regime for High Value Debt Listed Entities (“HVDLEs”). The paper is being released under the framework of the SEBI (Procedure for Making, Amending, and Reviewing of Regulations) Regulations, 2025, specifically invoking the “Public Consultation” process set out in Regulation 4. Under these rules, SEBI must publish its proposal (including draft regulations), the legal basis, its regulatory intent, and a timeline for public comments.
Among several changes, the most eye-catching is the proposed rise in the HVDLE threshold from ₹1,000 Cr to ₹5,000 Cr. This is especially striking given that earlier this year, SEBI had already raised the threshold from ₹500 Cr to ₹1,000 Cr (in effect since April 2025), meaning in just six months, the bar might be raised fivefold.
What does this mean in practice? SEBI itself estimates that only 48 entities would remain classified as HVDLEs under the ₹5,000 Cr proposal, compared to 137 at the ₹1,000 Cr level, effectively excluding around 64 % of the current HVDLE population.
This blog re-evaluates the quantitative threshold method used by SEBI to classify HVDLEs by comparing the qualitative metrics that other Western and South Asian countries utilise. Specifically, it argues that relying purely on a size-based metric (outstanding debt amount) may not be the most balanced or effective way to identify entities that have large outstanding debt exposures, pose liquidity risk in secondary markets or governance and related party transactions risk.
What are HVDLEs?
HVDLEs are companies that have listed non-convertible debt securities (such as debentures) above a certain threshold. While SEBI does not publish a consolidated list of entities classified as HVDLEs, the framework is trigger-based. Any entity whose outstanding listed non-convertible debt exceeds the threshold prescribed under the SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015 would fall within the HVDLE category. Accordingly, entities such as Bajaj Housing Finance Ltd. and Poonawalla Fincorp Ltd., which have publicly disclosed issuances of listed non-convertible debentures aggregating to approximately ₹1,000 crore or more, are illustrative examples of issuers that would qualify as HVDLEs by virtue of crossing the quantitative debt threshold.
The SEBI (Listing Obligations and Disclosure Requirements) (Fifth Amendment) Regulations, 2021 introduced Regulation 15(1A), which formally brought High Value Debt Listed Entities (HVDLEs) within the corporate governance regime. Through this amendment, any entity with listed non-convertible debt securities of ₹500 Cr or more was designated as an HVDLE. The regime, which first came into force in September 2021 on a “comply-or-explain” basis. This meant that such entities were required to either meet the new governance compliances or provide detailed justifications for non-compliance. On 1st April 2025, this compliance became mandatory for all HVDLEs..
The 2025 amendments in April refined the HVDLE regime by increasing the qualification threshold and introducing a three-year sunset provision for automatic exit from HVDLE status. A dedicated governance framework was created through Chapter VA (Regulations 62B-62Q) to provide tailored, not equity-replicated, compliance obligations. The framework selectively imposes governance and disclosure requirements that are directly relevant to creditor protection and systemic stability in the debt markets, while consciously avoiding the wholesale transplantation of equity-centric norms that are premised on shareholder activism and market control. The objective is facilitating better compliance and ease of reference: addressing the risks posed by large debt issuers without subjecting them to compliance structures designed for fundamentally different market dynamics.
Since these entities raise substantial capital from the debt market, the objective behind imposing an enhanced regime of regulations on HVDLEs becomes multi-fold. Experience from episodes of corporate distress in India, including failures such as IL&FS illustrates that distress in large debt-laden issuers can lead to concentrated losses for banks, NBFCs and debt mutual funds. Such concentrated losses refer to large financial losses that are borne by a limited number of institutions or investors, rather than being widely dispersed across the market. These losses arise because high-value debt issuers typically borrow from a narrow set of systemically significant lenders and funds, magnifying balance-sheet stress when defaults occur.
Further, distress in HVDLEs can trigger cross-default across multiple debt instruments, as acceleration clauses and interconnected borrowing structures cause defaults to cascade across bonds, loans and structured products. Such events also contribute to heightened volatility in corporate bond yields and spreads, eroding market confidence and impairing price discovery, with the potential for sector-wide contagion, particularly in segments heavily reliant on debt financing. It is these systemic and market-wide risks that underpin the regulatory objective of imposing proportionate but enhanced governance and disclosure obligations on such entities.
Towards a Factored Analysis Model: Lessons from Abroad
Even though many foreign jurisdictions do not have a separate category corresponding to India’s HVDLEs: when entities raise significant debt from the public, they are expected to adopt higher transparency, disclosure and governance standards to safeguard the interests of debt investors.
Unlike SEBI’s fixed quantitative approach for classifying entities as HVDLEs, jurisdictions such as the United States of America and Singapore adopt multi-dimensional regulatory models. These jurisdictions are particularly relevant comparators for India because both are high‑income, services‑driven economies with internationally integrated capital markets. According to the OECD Asia Capital Markets Report 2025, advanced markets such as the United States show a much higher reliance on debt securities as a share of total corporate debt which is around 64% of non-financial firms’ debt in the U.S., compared with just 14% for Asian economies on average. Notably, India is a rapidly growing economy with the second largest emerging bond market (commercially used interchangeably with debt market) in the world making the chosen jurisdictions an ideal reference point to base its framework on.
Most importantly, for the purposes of the present blog, both U.S.A and Singapore use scaled or tiered disclosure and governance regimes for debt issuers, tools SEBI itself now claims to be approximating through its HVDLE framework. . The objective of the consultation paper is to enhance ease of doing business and streamline compliance obligations for HVDLEs. In furtherance of this objective, SEBI seeks to rationalize existing provisions and align governance norms proportionately with the size and nature of high-value debt issuers, thereby signalling a move toward a scaled, risk-sensitive regulatory framework.
The US Securities and Exchange Commission (SEC) employs a principles-based, scalable regulatory design. Disclosure and compliance obligations vary by issuer classification, market capitalisation, and the complexity of the securities. Regulation S-K, for example, provides different compliance standards based on issuer size and filing status, allowing smaller companies to have lighter disclosure compliance.
While it is true that Indian issuers seeking to raise several thousand crores through listed NCDs must satisfy baseline requirements under the ICDR and LODR frameworks, these conditions function primarily as eligibility filters rather than risk-calibrated regulatory levers. Once an issuer crosses the threshold for listing, the regulatory burden is largely uniform across the credit spectrum in India.
By contrast, a key feature under Section 229.10 (Item 10) General of the Regulation S-K is the incorporation of issuer-specific risk factors such as credit rating, leverage, and financial health to scale regulatory oversight proportionally. This targeted approach ensures that regulatory intensity corresponds to the actual risk profile and systemic importance of the debt issuers, rather than relying solely on a size filter. Thus, the U.S. model does not merely screen issuers ex ante but continuously aligns regulatory scrutiny with evolving risk profiles, something the Indian HVDLE framework does not achieve with merely a quantitative threshold.
Similar to the U.S.A., the Monetary Authority of Singapore (MAS) and the Singapore Exchange (SGX) regulate debt issuers by integrating both issuer-level characteristics and market-specific variables. MAS under Chapter III (Debt Securities) of the Mainboard Rules looks at the sophistication of the target investor base, the scale of issuance relative to issuer capacity, and the complexity and hybrid nature of instruments.
Flaws in the Current System and the New Amendments
This section critiques SEBI’s HVDLE threshold proposal through three sequential arguments: (1) failure to address core structural debt market weaknesses; (2) arbitrariness in the threshold’s magnitude, timing, and implementation mechanics; and (3) absence of data-driven justification and deviation from global best practices.
Failure to address core structural debt market weaknesses
While ostensibly driven by industry feedback regarding compliance burdens, SEBI’s latest proposal for threshold increase conceals a more troubling reality: rather than addressing the underlying structural challenges in debt market regulation, such as persistent over-reliance on credit ratings, weak continuous disclosure and enforcement capacity, and the long-standing shortcomings of the debenture trustee framework, SEBI has opted for a blunt recalibration of the HVDLE regime.
These structural issues are well-documented. Firstly, multiple enforcement actions in the aftermath of the IL&FS and DHFL episodes show how rating actions lagged underlying credit deterioration, with SEBI itself penalising credit rating agencies for failure to exercise due diligence and independent judgment. Raising the HVDLE threshold does nothing to strengthen issuer‑side risk assessment or reduce this reliance on external ratings; it simply removes a large group of issuers from enhanced governance altogether.
Secondly, SEBI’s own orders and penalties against major issuers for delayed or incomplete disclosures in debt instruments highlight gaps in continuous disclosure practices and monitoring capacity. These weaknesses persist regardless of whether an entity is above or below ₹5,000 crore, indicating that changing the cut‑off does not necessarily improve surveillance or enforcement. What is therefore required is a shift towards qualitative disclosure standards that are not contingent solely on self-reported financial metrics. Factors that enable SEBI to assess compliance through a broader set of objective indicators, such as governance practices around debt issuances, disclosures on use of proceeds and repayment risks, intra-group exposure mapping, and track-record based triggers for issuers with prior compliance lapses. Such a framework would move beyond static numerical thresholds towards a more risk-sensitive supervisory approach.
Third, SEBI has repeatedly amended the debenture trustee framework to tighten duties around due diligence etc., acknowledging past deficiencies in trustee oversight and enforcement on behalf of debenture‑holders. Yet these obligations attach to the nature of the instrument and the trustee’s role, not to whether the issuer qualifies as an HVDLE. Hence, a higher threshold leaves the same fragile enforcement architecture in place while excusing many large but sub‑₹5,000 crore issuers from parallel board-level governance requirements.
Seen in this light, tinkering only with the quantitative trigger for HVDLE status cannot be an adequate response to structural risks rooted in ratings dependence, disclosure lapses, and trustee enforcement gaps. It merely reduces the population of entities subject to stronger Chapter VA norms, without remedying the underlying weaknesses of India’s debt market infrastructure.
Arbitrariness in Magnitude and Implementation
A major shortcoming of SEBI’s current proposal lies in the magnitude and abruptness of the threshold hike itself. SEBI increased the HVDLE threshold from ₹500 Cr to ₹1,000 Cr, imposing mandatory compliance from April 2025. Only months after the mandatory regime took effect, and before any meaningful compliance, market-response, or risk-profile data could be assessed, SEBI now proposes a five-fold increase to ₹5,000 Cr.
One of the stakeholder representations cited in the consultation paper for justifying the threshold increase itself highlights why a threshold-based method can be arbitrary. Stakeholders note that NBFCs above ₹1,000 Cr are already AA rated and required to raise at least 25% of incremental borrowings from capital markets, so they naturally cross the ₹1,000 Cr mark without posing any additional systemic risk. The paper also states that ₹1,000 Cr is not reflective of market realities because it forms only around 10% of an NBFC’s annual borrowing programme.
Notably, SEBI offers no explanation for why ₹5,000 Cr would be a more accurate or risk-reflective benchmark instead of ₹1,000 Cr even in the context of NBFCs. If, as the paper states, NBFCs typically operate in the ₹10,000 to ₹40,000 Cr range, the net effect of shifting the trigger from ₹1,000 to ₹5,000 Cr is essentially the same, which only reinforces that numerical cut-offs can be arbitrary.
Moreover, SEBI introduced a sunset clause through Regulation 62C of the LODR, requiring any entity once classified as an HVDLE to continue complying with the enhanced governance framework for three financial years before exiting the regime. As a consequence of this rule, even the 64% of entities expected to lose HVDLE status will still face full governance requirements for three more years, while other entities with the same debt profile will avoid regulation entirely.
While this distinction between previously classified HVDLEs and other entities may be defended as an intelligible differentia aimed at ensuring a smooth and non-disruptive phasing out of regulatory oversight, it rests on a formal classification that does not correspond to any meaningful difference in underlying risk.
The difficulty lies not in the idea of a sunset clause per se, but in its interaction with SEBI’s sharply shifting quantitative thresholds. SEBI itself considered entities with ₹500 crore of outstanding NCDs (Non-Convertible Listed Debt) as warranting heavy governance obligations, only to raise the threshold to ₹5,000 crore within months. This creates a structurally uneven regulatory landscape. For instance, an entity with ₹600 crore in outstanding NCDs as of March remains locked into full HVDLE compliance for three more financial years, while another entity that had ₹400 crore in March but crosses ₹500 crore or even ₹1,000 crore in April will not attract any of these obligations. The former continues to be regulated as risk-prone, while the latter escapes regulation entirely, even though it may be equally or more volatile in its debt profile.
This means that similarly situated entities are treated differently purely due to timing and threshold recalibration rather than any meaningful change in underlying risk. If the objective of the amendments was proportionality and easing of compliance burdens, the three-year sunset clause offers no immediate relief to existing HVDLEs while allowing functionally comparable issuers to avoid the regime altogether. The deeper problem, therefore, is not the sunset clause itself but SEBI’s reliance on blunt, rapidly shifting quantitative thresholds instead of more multidimensional criteria for identifying debt-market systemic risk.
Absence of Data-Driven Process
On the other hand, jurisdictions like the United Kingdom and Singapore, which employ sophisticated risk-calibrated regulatory models, typically utilise inter-implementation review periods to assess market impact, compliance efficacy, and emerging risks, as found in their periodic assessment reports. However, the consultation paper provides no impact analysis comparing debt market outcomes, default rates, governance violations, or investor protection metrics under the ₹1,000 Cr regime versus the previous ₹500 Cr threshold.
The Supreme Court, in Arun Kumar Agrawal v. Union of India & Ors, made it clear that SEBI is the top authority when it comes to regulating and shaping India’s securities market. The court noted that it was established “to protect the interests of investors in securities and to promote the development of, and to regulate the securities market,” while being vested with wide-ranging powers to perform its duty. This is particularly important because, as the Court has recognised, SEBI’s primary mandate is to protect the interests of investors, and in volatile markets such as the debt market, these interests should not be disproportionately subordinated to ease-of-doing-business justifications highlighted in SEBI’s consultation paper; one should not be traded off for the other. This judicial recognition reminds us that any change in SEBI’s governance rules, especially in the debt market, must be data-driven to ensure that the governance frameworks remain committed towards upholding the safety of the investors.
A Risk-Based Threshold Proposal: Aligning India’s HVDLE Regime with Global Practices
A comparative view of global debt markets indicates that jurisdictions such as the United States and Singapore might have fared more robustly, in part due to their adoption of multidimensional, risk-sensitive regulatory frameworks rather than rigid, single-metric thresholds.
The Indian experience in the failure of IL&FS underscores the importance of such an approach. The systemic disruption that followed illustrates the limitations of rigid, threshold-based classifications in capturing real sources of market risk. In this context, it may be timely to reconsider the continued reliance on inflexible numerical standards. Drawing from the regulatory practices of the United States and Singapore, this section proposes a composite, risk-based framework through which SEBI can better balance ease of doing business with its core mandate of investor protection, while directly targeting the channels through which issuer-level distress generates systemic spillovers.
Instead of a single ₹5,000 crore cut‑off, entities could be classified as HVDLE where they meet any two out of three simple conditions:
- listed NCDs above a quantitative base that SEBI determines through a transparent, data‑driven exercise rather than ad hoc revisions;
- significant use of complex or group‑linked structures (for example, cross‑default, subordination, or intra‑group guarantees of the kind that amplified losses in IL&FS); and
- significant non‑institutional or quasi‑retail participation in their debt (to be decided via guidelines).
Entities triggering this composite test would then be subject to Chapter VA‑type governance, regardless of their absolute outstanding debt This would align India more closely with Singapore and USA style practice, where the nature of the instrument and the investor base drive regulatory intensity, and would directly target the channels through which a single issuer’s distress can transmit across multiple instruments.
Such a framework would deliver concrete benefits for both market participants and regulators. Corporates and NBFCs would no longer face blanket heavy compliance simply because they cross a numerical threshold. This means that if their debt programme is plain-vanilla and low-risk in structure, the qualitative criteria would exempt them despite high absolute volumes. This addresses industry complaints about disproportionate burdens hampering business operations. Meanwhile, investors, both domestic and foreign, gain confidence from heightened safeguards on precisely those programmes where systemic risk is real. The result is a market that remains safe for investors while staying lucrative and predictable for legitimate business growth, eliminating the need for SEBI to repeatedly revise a single arbitrary threshold in response to lobbying or market expansion.
Way Forward
SEBI’s challenge should not be choosing between strict regulation and outright deregulation. It should be to redesign governance rules so that they are proportional, efficient, and aligned with actual risk. A better approach would be to assess which HVDLE requirements genuinely improve governance, which obligations impose unnecessary costs, and which can be replaced with lighter or tiered standards. Other jurisdictions already use factors such as issuer profile, issuance frequency, and investor base to build qualitative, risk-based frameworks, and SEBI should adopt a similar model.
* Vaishnawi Sinha is a third year Law student at NALSAR University of Law, Hyderabad. Ameya Sharma is a fourth year Law student at NALSAR University of Law, Hyderabad.