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    Process of Issue of Commercial Papers

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    Apoorv Gupta
    Commercial paper is a short term unsecured promissory note issued by highly rated corporates to raise funds. It was introduced in India in 1990 to provide additional borrowing sources for companies and investment instruments for investors. Companies benefit from cheaper funds compared to bank loans and minimal documentation. Commercial papers can be issued by corporates, primary dealers and financial institutions if they meet eligibility criteria including minimum credit rating and net worth. The issuing company works with an issuing and paying agent bank to complete the issuance process within 2 weeks, which involves board approval, rating, and document verification. Investors include individuals, banks, corporates and FIIs. Concerns have been raised around increased issuances impacting credit quality and proper due diligence

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    Process of Issue of Commercial Papers

    Uploaded by

    Apoorv Gupta
    2K views14 pages
    Commercial paper is a short term unsecured promissory note issued by highly rated corporates to raise funds. It was introduced in India in 1990 to provide additional borrowing sources for companies and investment instruments for investors. Companies benefit from cheaper funds compared to bank loans and minimal documentation. Commercial papers can be issued by corporates, primary dealers and financial institutions if they meet eligibility criteria including minimum credit rating and net worth. The issuing company works with an issuing and paying agent bank to complete the issuance process within 2 weeks, which involves board approval, rating, and document verification. Investors include individuals, banks, corporates and FIIs. Concerns have been raised around increased issuances impacting credit quality and proper due diligence

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    Commercial paper is a short term unsecured promissory note issued by highly rated corporates to raise funds. It was introduced in India in 1990 to provide additional borrowing sources for companies and investment instruments for investors. Companies benefit from cheaper funds compared to bank loans and minimal documentation. Commercial papers can be issued by corporates, primary dealers and financial institutions if they meet eligibility criteria including minimum credit rating and net worth. The issuing company works with an issuing and paying agent bank to complete the issuance process within 2 weeks, which involves board approval, rating, and document verification. Investors include individuals, banks, corporates and FIIs. Concerns have been raised around increased issuances impacting credit quality and proper due diligence

    Copyright:

    Attribution Non-Commercial (BY-NC)
    Download as PPTX, PDF, TXT or read online from Scribd
    Download as pptx, pdf, or txt
    2K views14 pages

    Process of Issue of Commercial Papers

    Uploaded by

    Apoorv Gupta
    Commercial paper is a short term unsecured promissory note issued by highly rated corporates to raise funds. It was introduced in India in 1990 to provide additional borrowing sources for companies and investment instruments for investors. Companies benefit from cheaper funds compared to bank loans and minimal documentation. Commercial papers can be issued by corporates, primary dealers and financial institutions if they meet eligibility criteria including minimum credit rating and net worth. The issuing company works with an issuing and paying agent bank to complete the issuance process within 2 weeks, which involves board approval, rating, and document verification. Investors include individuals, banks, corporates and FIIs. Concerns have been raised around increased issuances impacting credit quality and proper due diligence

    Copyright:

    Attribution Non-Commercial (BY-NC)
    Download as PPTX, PDF, TXT or read online from Scribd
    Download as pptx, pdf, or txt
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    PROCESS OF ISSUE OF

    COMMERCIAL PAPERS
    Section: C2DE

    Karan Vyas 2009159


    Maheep Sangari 2009163
    Prachir Gupta 2009185
    Rajnikant bajaj 2009190
    Rashmi prasad 2009192
    Commercial Papers
    Commercial paper, or CP is a short term unsecured
    promissory note
    Minimum denomination of Rs. 5 Lakhs and multiples
    of 5 Lakhs thereon
    Maturity from 7 days to one year
    Unsecured Money Market Instruments and backed by
    credit of the issuing company
    History of CPs in India
    Introduced in India in 1990 with a view to enabling
    highly rated corporate borrowers to diversify their
    sources of short-term borrowings and to provide an
    additional instrument to investors.
    Benefits of CPs for Companies
    CP gives highly rated companies access to cheaper
    funds as compared to the working capital finance from
    banks or other sources.
    It minimises documentation requirements.
    The maturity of CP can be suitably adjusted as per the
    cash flow requirements of the issuers.
    CPs can be issued by

    1. Corporates
    2. Primary Dealers (PDs)
    3. All India Financial Institutions(FIs)
    Eligibility Criteria
    1. Minimum tangible net worth of Rs. 4 crore
    2. Should have been sanctioned working capital limits by
    banks/FIs and should be classified as a 'Standard Asset' by
    the financing bank(s) / FIs.
    3. Should have minimum credit rating from an agency
    approved by RBI (Such minimum rating from CRISIL,
    CARE is PR 2).
    4. Issue of CP together with other instruments viz., term
    money borrowings, term deposits, certificates of deposit and
    inter-corporate deposits should not exceed 100 per cent of
    its net owned funds, as per the latest audited balance sheet.
    Process of Issue
    Resolution passed by the
    Board of Directors

    File relevant documents, as


    per RBI norms

    CP issue rated by an RBI


    approved credit rating
    agency

    Select the Issuing and


    Paying Agent (usually a
    scheduled bank)

    Issue has to be completed


    within 2 weeks of opening
    Costs Involved for issuing CP
    1. Stamp duty
    2. Rating fees
    3. Issuing and paying agent fee
    Responsibilities of Issuing & Paying Agent (IPA)
    Ensure that issuer has the minimum credit rating
    Verify all the documents submitted by the issuer viz.
    1. Copy of board resolution
    2. Signatures of authorised executants
    Issue a certificate that documents are in order
    For transparency and benchmarking, IPA should report
    CP issues on NDS within two days from the
    completion of the issue.
    Investors in Commercial Papers
    CP may be issued to and held by
    1. Individuals
    2. Banking companies
    3. Other corporate bodies registered or incorporated in
    India
    4. Non-resident Indians (NRIs)
    5. Foreign Institutional Investors (FIIs)
    Documents Required by Investors
    The following are the documents required by the
    investors:
    1. Original certificates stamped
    2. Copies of the Board Resolution and signatures of
    Authorised Signatory(ies) of the corporate.
    3. Rating letter from an approved credit rating agency
    Factors Affecting the Interest Rate
    on CP
    Quality of credit, as indicated by the credit rating
    Liquidity in the money market
    Call money rates
    Outlook & yield from alternative investment
    Current Issues
    No. of CP issuances have bloated in response to post
    the Base Rate Regime
    RBI has expressed concern over the quality of credit in
    these papers
    Concern over proper due diligence
    RBI likely to come out with revised guidelines
    CP market could become organised in terms of
    regulation and reporting.
    THANK YOU 

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