COMMERCIAL PAPER :
Commercial Paper (CP) is an unsecured money market instrument issued in the form of a promissory note. CP, as a privately placed instrument, was introduced in India in 1990 with a view to enable highly rated corporate borrowers to diversify their sources of short-term borrowings and to provide an additional instrument to investors. Subsequently, primary dealers (PDs), and all-India financial institutions were also permitted to issue CP to enable them to meet their short-term funding requirements for their operations. The Guidelines for issue of CP are presently governed by various directives issued by the Reserve Bank of India, as amended from time to time.
The guidelines for issue of CP are given below:
Eligible issuers of CP
Companies, PDs and financial institutions (FIs) are permitted to raise short-term resources under the umbrella limit fixed by the Reserve Bank of India (RBI) are eligible to issue CP. A company would be eligible to issue CP provided:
(a) the tangible net worth of the company, as per the latest audited balance sheet, is not less than
` 4 crore;
(b) the company has been sanctioned working capital limit by bank/s or FIs; and
(c) the borrowal account of the company is classified as a Standard Asset by the financing bank/ institution.
Rating Requirements
All eligible participants shall obtain credit rating for issuance of CP from any one of the SEBI registered Credit
Rating Agencies. The minimum credit rating shall be ‘A3’ [as per rating symbol and definition prescribed by Securities and Exchange
Board of India (SEBI)]. The issuers shall ensure at the time of issuance of the CP that the rating so obtained is current and has not fallen due for review.
Maturity
CP can be issued for maturities between a minimum of 7 days and a maximum of up to one year from the date of issue. The maturity date of the CP should not go beyond the date up to which the credit rating of the issuer is valid.
Denominations
CP can be issued in denominations of ` 5 lakh and multiples thereof. The amount invested by a single investor should not be less than ` 5 lakh (face value).