Commercial paper, Existing Guidelines issued by RBI

Commercial Paper (CP ) is a money market instrument issued in the unsecured
form of a promissory note. CP as an instrument of private placement, was introduced in India
in 1990 to enable highly rated corporate borrowers to diversify their
sources of short-term borrowings and to provide an additional tool for investors.
Thereafter, SVT and satellite operators were also allowed to issue CP to enable them to meet their needs for short-term financing for their operations.


directions / guidelines on the subject:

Who can issue commercial paper (CP )

2 . Companies, primary dealers (PDS) and satellite dealers (SDS), and the whole of India
financial institutions (FIs ) have been permitted to raise short-term resources under
umbrella limit fixed by the Reserve Bank of India are eligible to issue CP .

3 . A business may be eligible to issue CP provided - ( a) the tangible net worth
the company , according to the latest audited balance sheet , is not less than Rs . Crore 4 (b )
company has been sanctioned working capital limit by bank / s or Financial India
institution / s , and ( c) the borrowal the enterprise is classified as standard
Although the bank financing / s / institution / s.

Note Requirement

4 . All eligible participants shall obtain the credit rating for the issue of trade
Paper credit rating or information of India Ltd. ( CRISIL ) or Services
Investment Information and Credit Rating Agency of India Ltd. ( ICRA ) or Credit
Analysis and Research Ltd. (CARE ) or Fitch Ratings India Pvt. Ltd. or other
credit rating agency (CRA ) to be fixed by the Reserve Bank of India from time
to time, in order . The minimum credit rating of P- 2 of CRISIL or such
equivalent rating by other agencies . Issuers should ensure at the time of issuance of
CP that the classification obtained is current and has not decreased due for review.

Maturity

5. CP can be issued for maturities between a minimum of 15 days and a maximum
until one year after the date of issuance .

Names

6 . CP can be issued in denominations of Rs 5 lakh or multiples thereof. amount
invested by single investor should not be less than Rs 5 lakh ( face value).

And limits the amount of emission CP

7 . CP may be issued in "stand alone" product. The total CP
the transmitter must be within the limits approved by the Board of Directors . Banks and FIs
however, will be able to set limits in working capital due regard
the resource model of corporate finance, including PC.

8 . An FI can issue CP within the overall framework set by the RBI is a question of CP
with other instruments certificates know. , Borrowing money to run, time deposits,
deposits and inter- corporate deposits should not exceed 100 percent of its net property
funds, according to the latest audited balance sheet.

9 . The total amount of CP proposed to be issued should be raised within two
weeks from the date on which the issuer opens the issue for subscription . CP can be
published on a single date or in parts on different dates provided that in the latter case, each
CP must have the same expiration date.
Each CP number must be reported to the Chief General Manager , industrial and export
Credit Department ( IECD ) , Reserve Bank of India, Central Office , Mumbai through the
Issuing and Paying Agent (IPA ) within three days after completion of the
question, including data in accordance with Annex II.

10 . Every issue of CP , including renewal, should be treated as a new issue.

Who can act as Issuing and Paying Agent (IPA)

11 . Only a scheduled bank can act as an IPA for issuance of CP .

Investment in CP

12 . CP may be issued and held by individuals, banking companies , other
Corporations incorporated or registered in India and unincorporated bodies , non-
Resident Indians ( NRIs) and foreign institutional investors (FIIs ) . However,
investment by FIIs would be within the limits set for their investments in securities and
Exchange Board of India ( SEBI ) .

Fashion Publication

13. CP may be issued in the form of a promissory note ( Schedule I) or a
dematerialized form by one of the authorized dealers and registered by
SEBI . Regarding the existing stock of CP , the same can continue to be owned in
physical or may be demateralised form if the issuer and the investor agree to the
same .

14. CP will be issued at less than their nominal value, which can be determined by the issuer.

15 . No issuer shall have the issue of commercial paper purchased or coaccepted .

Preference for dematerialized

16. While the option is available to issuers and subscribers to issue / hold CP
dematerialized or physical form , issuers and subscribers are encouraged to prefer
exclusive reliance on dematerialized form of issue / holding. Banks, financial
Institutions, PD and DS are invited to invest and hold PC only dematerialized
as soon as the terms of this dematerialization are implemented .

Payment of CP

17. The initial investor in CP shall pay the discounted value of the PC using a
through profit checking account on behalf of the issuer by the IPA . At the end of
CP when the CP is held in physical form, the holder of the CP shall present the
payment instrument to the issuer by the IPA . However, when the CP is held in
demat form , the holder of CP will get redeemed by the depositary and
receive payment of the IPA .

Standby Facility

18 . Given CP is a ` stand alone ' product, it would not be binding in any
how the banks and FIs to provide stand-by facility for CP issuers .
Banks and FIS , however, have the option of a CP issue , credit
improvement through stand-by support / credit guarantee facility , etc. , depending on their
business judgment and under the conditions prescribed by them. However , they must be
in prudential standards , as appropriate and subject to the express approval of the Board .

Grant procedure

19. Every issuer must appoint an IPA for issuance of CP . The issuer must disclose
potential investors its financial position, in accordance with normal market practice. after
exchange transaction confirmation between the investor and the issuer, issuing company
deliver physical certificates to the investor or arrange for crediting
CP on behalf of the investor with a depository . Investors receive a copy of
IPA certificate to the effect that the issuer has a valid agreement with the IPA and
documents are in order (Annex III).

Role and Responsibilities

20 . The role and responsibilities of the issuer, IPA and CRA are set out below:

( A) the transmitter

With the simplification of procedures for CP issuance , issuers would now
have more flexibility . However, issuers should ensure that the guidelines and
procedures for CP issuance are strictly adhered to .

( B ) Issuing and Paying Agent (IPA)

( I) IPA would ensure that issuer has the minimum credit rating as stipulated by the
RBI and the amount raised through the issuance of CP is within the quantum indicated by
CRA for the specified value.

( Ii ) IPA must verify all the documents submitted by the knowledge of the issuer. A copy of the map
resolution , signatures of authorized executants (when CP in physical form ) and issue a
certificate attesting that the documents are in order . It must also certify that it has a valid
agreement with the issuer ( Schedule III).

( Iii ) The original documents verified by the IPA should be placed in the custody of
IPA .

( C) Credit Rating Agency ( CRA)

Code of Conduct prescribed by the SEBI for CRAs for undertaking rating ( i)
capital market instruments applicable to them (CRAs ) for rating CP .

( Ii ) In addition, the credit rating agency would henceforth have the discretion to
determine the period of validity of the certificate based on its perception of the
the emitter resistance . Therefore, the CRA must at the time of rating, clearly indicate the
when the note is due for review.

( Iii ) While the CRAs can decide the validity of the credit rating, the rating agencies would
have to monitor the rating assigned to issuers vis-à- vis their balance sheet
regular intervals and would be required to make public its revision in ratings by
publications and website .

21. Fixed Income Money Market and Derivatives Association of India ( FIMMDA )
as a self-regulatory organization (SRO) for money market fixed income
may prescribe, for operational flexibility and smooth functioning of the PC market,
standardized procedure and documentation that must be followed by the participants,
accordance with international best practices. Until then, the
procedures / documentation prescribed by IBA should be followed.

22. Violation of these guidelines will attract penalties in the law by the
RBI may also include banning from the CP market.

Non- application of certain other directions

23. Nothing contained in the Non -Banking Financial Companies Acceptance of
Public Deposits ( Reserve Bank ) Directions 1998 apply to any non - bank
financial company ( NBFC ) insofar as it relates to the acceptance of deposit by issuance of
CP , in accordance with these guidelines.

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