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    What Is Commercial Paper?

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    Dr. Amit Jain
    Commercial paper is a short-term unsecured promissory note issued by highly rated corporate borrowers, primary dealers, and financial institutions. It was introduced in India in 1990 to diversify short-term borrowing sources and provide additional investment instruments. Guidelines govern issuance including issuer eligibility criteria, maturity periods up to one year, minimum denominations, and roles of issuing entities, financing banks, credit rating agencies, and the issuing and paying agent.

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    What Is Commercial Paper?

    Uploaded by

    Dr. Amit Jain
    22 views13 pages
    Commercial paper is a short-term unsecured promissory note issued by highly rated corporate borrowers, primary dealers, and financial institutions. It was introduced in India in 1990 to diversify short-term borrowing sources and provide additional investment instruments. Guidelines govern issuance including issuer eligibility criteria, maturity periods up to one year, minimum denominations, and roles of issuing entities, financing banks, credit rating agencies, and the issuing and paying agent.

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    Commercial Paper

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    Commercial paper is a short-term unsecured promissory note issued by highly rated corporate borrowers, primary dealers, and financial institutions. It was introduced in India in 1990 to diversify short-term borrowing sources and provide additional investment instruments. Guidelines govern issuance including issuer eligibility criteria, maturity periods up to one year, minimum denominations, and roles of issuing entities, financing banks, credit rating agencies, and the issuing and paying agent.

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    © All Rights Reserved
    Download as PPT, PDF, TXT or read online from Scribd
    Download as ppt, pdf, or txt
    22 views13 pages

    What Is Commercial Paper?

    Uploaded by

    Dr. Amit Jain
    Commercial paper is a short-term unsecured promissory note issued by highly rated corporate borrowers, primary dealers, and financial institutions. It was introduced in India in 1990 to diversify short-term borrowing sources and provide additional investment instruments. Guidelines govern issuance including issuer eligibility criteria, maturity periods up to one year, minimum denominations, and roles of issuing entities, financing banks, credit rating agencies, and the issuing and paying agent.

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    © All Rights Reserved
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    of 13

    What is Commercial Paper?

    An unsecured money market instrument


    In the form of a promissory note
    Negotiable by endorsement and delivery
    Introduced in India in 1990
    To enable highly rated corporate
    borrowers to diversify their sources of
    short term borrowings
    To provide an additional instrument to
    investors
    Guidelines for Issue of CP
    Guidelines for issue of commercial paper (CP)
    by companies, primary dealers and satellite
    dealers are governed by the directions issued
    by Reserve Bank of India.
    Reviewed by an internal group
    Who can issue a CP
    Highly rated corporate borrowers
    Primary dealers (PDs)
    Satellite dealers (SDs)
    All India financial institutions (FIs)
    Eligibility of an Issuer

    Tangible net worth of company not less than


    Rs. 4 crore
    The borrower account is classified as
    standard asset by the financing bank/s
    Minimum credit rating
    CRISIL, ICRA, CARE, DCR
    Min credit rating = P-2
    Contd..
    Maturity
    CP can be issued for maturities
    between a min of 15 days and max upto
    one year from the date of issue

    Denominations
    min. amount Rs. 5 lacs
    Denominations of Rs. 5 lacs or multiples
    Contd..
    Investment in CP
    Individuals
    Banking companies
    Corporate bodies
    NRIs & FIIs
    Mode of Issuance
    Either in the form of a promissory note or in a
    demat form
    At a discount to face value
    Preference for demat form
    Contd..
    Limits and the Amount of Issue
    Should not exceed the working capital
    Within overall umbrella limit fixed by the RBI
    Should not exceed 100% of its net owned
    funds
    Total amount of CP should be raised within a
    period of two weeks
    CP may be issued on a single date or in parts
    Still shall have the same maturity date
    Every issue should be treated as a fresh issue
    Contd..
    Procedure for Issuance for Corporate

    Submit a proposal incorporating details as per


    schedule II. A
    Upto 50% of WCL, open the issue for subscription
    In excess of 50% of WCL can open the issue for
    subscription only after the proposal has been taken on
    record by the financing banking company
    Is complete within the period of two weeks
    Issue physical certificates to the investor
    Initial investor to pay the discounted value of CP to
    the a/c of the issuing company
    Contd..
    Procedure for Issuance for PDs/SDs
    Primary Dealer (PD) / Satellite Dealer (SD)
    Should report details to RBI as per schedule
    II. B
    Make arrangements for privately placing the
    issue
    Ensure that issue is complete within a period
    of two weeks
    Initial investor shall pay discounted value of
    the CP of the a/c of the issuing PD/SD
    Advise the RBI the amount of CP actually
    issued, within 3 days from the date of
    completion of issue
    Contd..
    Procedure for Issuance for All-India FIs
    Report details of the proposed issue to the
    RBI (IECD) as per schedule II.C
    Ensure that aggregate amount of CP issued is
    within the overall umbrella limit fixed by RBI
    Make arrangements for privately placing the
    issue
    Ensure that proposed issue is complete within
    a period of 2 weeks
    Initial investor to pay the discounted value of
    the CP to the a/c of the issuing FI
    Every FI issuing CP to advise the RBI (IECD)
    the amount of CP issued, within 3 days
    Contd..
    Role and Responsibilities of Issuer
    Guidelines & procedures laid down by the RBI
    are strictly adhered to
    Any violation of procedures /guidelines by
    issuers of CP shall attract penal action
    Debarring the concerned issuer from issuing
    CP for next one year
    Actions taken by the authorities would also be
    made public
    Contd..
    Roles and Responsibilities of Financing
    Banking Companies:
    On receipt of the proposal for issuance
    of CP by the corporate, would take the
    proposal on record
    Arrange for corresponding reduction in
    the working capital fund based limit of
    the issuer, once the CP is issued
    In event of discrepancy / non-
    compliance of guidelines/ procedures,
    by the issuer, intimate the same to RBI
    Contd..
    Roles and Responsibilities of Issuing and
    Paying Agent
    Verify all the documents submitted by
    the issuer and issue a certificate that
    documents are in order (Schedule III)
    Original documents verified should be
    held in the custody of IPA
    Other responsibility & standardized
    Procedures/ documentation to be
    examined by a SRO, to be identified by
    the Reserve Bank
    Violation to attract punitive action
    Contd..
    Roles and Responsibilities of Credit
    Rating Agencies
    Code of conduct prescribed by SEBI for CRAs
    for undertaking rating of capital market
    instruments shall be applicable for rating CP
    Discretion to determine the validity period
    At the time of rating to clearly indicate the date
    when the rating is due for review
    To closely monitor the rating assigned to
    issuers vis--vis their track record at regular
    intervals
    Intimate the FBC (RBI in case of PD/SD and
    FI) / IPA of any revision in the rating

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