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If you have tried applying for a popular non-convertible debenture (NCD) issue in India, you know how competitive these public issues can be. Retail investors are attracted to the higher coupon rates, and NBFC and housing finance company issues often get oversubscribed several times over. However, what most investors do not fully understand is that just having your application in does not mean you will get what you applied for.
SEBI has a detailed, two-step allotment mechanism: one is based on the date of application, and the other is based on a method in which all applicants are given a proportional share once the issue crosses into the “oversubscribed” category. Understanding this mechanism will allow you to better time your NCD applications and set a reasonable expectation of the amount you will actually be allotted.
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What Is Date Priority Allotment for NCDs?
NCD allotment in India is done following a ‘date priority’ or first-come, first-served system. This implies that the order of allocation is determined by the date of online upload of applications on the exchange platform, not the date of submission of the physical application form or the date of payment. Certain operational details that need to be addressed:
- Only applications that have been uploaded to the stock exchange’s online system are considered; applications that don’t reach the exchange are of no consequence
- Applications uploaded on the same day are treated equally, and the order of allocation is not determined by the time of upload
- If an application is revised with respect to a field that cannot be edited online (quantity or series, for example), the application is considered to have been submitted on the newer day and time; however, if a field that can be edited online is revised, your original application date still applies
In practice, this means that an NCD applicant who applies before the base size is reached will be fully allocated that NCD, assuming the issue stays open that long.
When Does Pro-Rata Allotment Kick In?
Pro-rata applies on the date of oversubscription, which occurs when total cumulative bids exceed the base issue size. Here is the process as described in the SEBI Master Circular for Non-Convertible Securities:
- Everyone who applied up to one day before the oversubscription date gets a full allotment
- Everyone who applied on the oversubscription date itself, or after, shares what’s left on a pro-rata (proportionate) basis
- The pro-rata share is calculated, then rounded to the nearest whole NCD
- If rounding pushes the total allotment above the available quantity, the applicant with the larger decimal fraction (before rounding) gets priority
- If two applicants are tied on decimal value, the tie is broken by a computerized draw of lots
This is why two people who applied on the same “oversubscription day,” even for the same amount, can end up with slightly different allotments.
Pro-Rata Share Calculation
The pro-rata share for an applicant is calculated using this formula:
Applicant’s Pro-Rata Share = (NCDs applied by that applicant ÷ Total NCDs applied for by all Day-2 applicants) × NCDs remaining for allotment
The tricky part is what happens after the formula, because individually rounding each applicant’s share to the nearest whole number can cause the total to exceed or fall short of what is available. The rounding methodology used by SEBI works like this: round each share to the nearest whole number, determine if the total rounded shares exceed or fall short of the available shares, and then adjust by looking at who was rounded up or down by the smallest margin, bumping those applicants the other way until the total matches exactly.
A Worked Example
Say 1,000 NCDs are left after full allotment to early applicants, and four Day-2 applicants together bid for 2,181 NCDs.
Step 1- Calculate each applicant’s exact share:
| Applicant | NCDs Applied | Exact Pro-Rata Share |
| Applicant 1 | 630 | (630 ÷ 2,181) × 1,000 = 288.858 |
| Applicant 2 | 516 | (516 ÷ 2,181) × 1,000 = 236.589 |
| Applicant 3 | 517 | (517 ÷ 2,181) × 1,000 = 237.047 |
| Applicant 4 | 518 | (518 ÷ 2,181) × 1,000 = 237.506 |
| Total | 2,181 | 1,000.000 |
The exact shares always add up perfectly; it’s the rounding step that creates a mismatch.
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Step 2- Round each share normally: 288.858 → 289; 236.589 → 237; 237.047 → 237; 237.506 → 238. The total comes to 1,001, which is one NCD more than is available.
Step 3- Correct the overshoot: Only three applicants were rounded up—Applicant 1 (.858), Applicant 2 (.589), and Applicant 4 (.506). Applicant 3 was already rounded down, so it isn’t touched. Among the three rounded up, Applicant 4 has the smallest decimal, so it’s the one bumped back down by one unit to bring the total back to exactly 1,000.
Final allotment:
| Applicant | NCDs Applied | Final Allotment |
| Applicant 1 | 630 | 289 |
| Applicant 2 | 516 | 237 |
| Applicant 3 | 517 | 237 |
| Applicant 4 | 518 | 237 |
| Total | 2,181 | 1,000 |
Two applicants who applied for very different quantities, Applicant 3 (517) and Applicant 4 (518), both received the same final allotment. Their decimals just so happened to rank them the same. This is the part most investors miss: Your pro-rata allotment does not equal “your share of what you applied for.” It’s that share, adjusted by a fraction-ranking step measured against everyone else competing for the same leftover pool.
What Happens When an Issue Is Undersubscribed in One Category?
Not every category of investors is affected equally by oversubscription. If the overall issue is oversubscribed but a certain category is not, then, as per SEBI’s rules, preference goes as follows: retail individual investors, then high-net-worth individuals (HNIs), then non-institutional investors, and finally institutional investors. This is meant to protect smaller investors from being crowded out by large institutional bids.
Investor Categories in an NCD Public Issue
SEBI has categorized NCD applicants into four groups, each with a specified quota in the offer document: Category I applicants include banks, insurers, mutual funds, and provident funds; Category II applicants include companies, trusts, societies, and HUFs; Category III applicants include HNIs investing above a certain limit; and Category IV applicants include retail individual investors applying up to ₹10 lakh. It is important to note that an oversubscribed category does not take up space allocated to other categories unless specifically mentioned in the offer document. So a heavily oversubscribed retail portion won’t necessarily “borrow” space from an undersubscribed institutional quota.
A Recent Real-World Example
IIFL Finance’s April 2025 NCD public issue, with a base size of ₹100 crore and a green shoe option of ₹400 crore (a total of ₹500 crore), ended up getting oversubscribed by 4.75x [1] times, with subscriptions reaching ₹475 crore by April 9, 2025. The heavy subscription forced the company to close the issue on April 11, instead of its original closure date of April 23. This is a common occurrence for well-rated NBFC NCDs. Early closure is a direct consequence of the date-priority mechanism. Once demand crosses the base size, every additional day of bidding just adds more applicants competing for the remaining pro-rata pool.
Key Takeaways for NCD Investors
- There is a strict date order in which applications are processed, and being at the top of that order can mean the difference between a full allotment and a partial, rounded-down pro-rata share
- Retail investors get first preference if the overall issue is oversubscribed but the retail category itself isn’t fully subscribed
- Pro-rata math is not exactly proportional once rounding and the largest-remainder correction come into play
- Category-wise reservations mean oversubscription in Category III (HNI) doesn’t help you if you applied under Category IV (Retail), and vice versa, unless the prospectus says otherwise
Frequently Asked Questions
It generally refers to date-based priority in allotment. Applications uploaded on an earlier date can receive priority over applications uploaded on a later date, subject to the issue’s allocation ratio and allotment rules.
Pro-rata allotment means eligible applicants receive NCDs broadly in proportion to the size of their applications when the available NCDs are insufficient to satisfy all applications in that portion.
No. Applying early can provide date priority where the issue uses such a mechanism, but it does not guarantee that you will receive all the NCDs you apply for.
It is the date on which applications in the relevant portion or category exceed the NCDs available for allotment in that portion, subject to the issue’s allocation structure.
Not necessarily. It depends on when the relevant category or portion becomes oversubscribed and the specific basis of allotment. An early application can have priority, but the final allocation is governed by the issue terms.
Where the issue follows a date-priority structure, applications uploaded on the same day are generally treated at par with one another. If the available NCDs are insufficient for those applications, allotment can be made proportionately among them.
Sources
Disclaimer
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