Commercial Paper: An Introduction\n\n\n\nLet us discuss Commercial paper (CP). CP is an unsecured\nmoney market instrument (MMI) issued in the form of a promissory note. Commercial\npaper (CP) was launched in India in 1990. Corporates, companies, primary\ndealers and the All India Financial Institutions (FIs) are eligible to issue commercial\npaper (CP).\n\n\n\nA corporate would be eligible to issue commercial paper (CP)\nprovided:\n\n\n\n1. The tangible net worth of the company as per the latest\naudited balance sheet is not less than rupees 4 crore.\n\n2. Company has been sanctioned working capital limit by bank\/s or\nall India Financial Institution\/s and\n\n3. The borrowal account of the company is classified as a Standard\nAsset by the financing bank or institution\/s\n\ncommercial paper\n\n\n\n\n\nAll corporate desiring to issue commercial paper (CP) shall obtain\nthe credit rating from the Credit Rating Information Services of India Limited (CRISIL)\nor the investment information and the Credit Rating Agency of India Limited (ICRA)\nor the Credit Analysis and Research Limited (CARE) or the FITCH ratings India\nPrivate Limited or such other Credit Rating Agency (CRA) as may be specified by\nthe Reserve Bank of India from time to time, for the purpose. The minimum credit rating shall be A-2 (this\nis in accordance with rating symbol and definition prescribed by Securities and\nExchange Board of India (SEBI). The issuers shall ensure at the time of\nissuance of commercial paper (CP) that the rating so obtained is current and\nhas not fallen due for review.\n\n\n\nCommercial paper (CP) can be issued for maturities between a\nminimum of 7 days and the maximum of\nup to 1 year from the date of issue. However\nthe maturity date of the commercial paper (CP) should not go beyond the date up\nto which the credit rating of the issuer is valid. Commercial paper (CP) can be\nissued in denominations of rupees 5.00 lakh or multiples thereof. The total\namount of commercial paper (CP) proposed to be issued should be raised within a\nperiod of 2 weeks from the date on which the issuer opens the issue for subscription.\nCommercial Paper (CP) may be issued on a single date or in parts on different\ndates provided that in the latter case each commercial paper (CP) shall have\nthe same maturity date. Further every issue of commercial paper (CP) including\nrenewal shall be treated as a fresh issue. Only a scheduled Bank can act as an\nIPA for issuance of commercial paper (CP). IPA means issuing and paying agent. \n\n\n\nIndividuals, banking companies, other corporate bodies\nregistered or incorporated in India and unincorporated bodies, Nonresident\nIndians (NRIs) and foreign institutional investors (FIIs) etc. can invest in commercial\npaper (CPs). However, investment by foreign institutional Investors (FIIs) would\nbe within the limits set for them by Securities and Exchange Board of India\nfrom time to time.\n\nCommercial paper (CP) can be issued either in the form of a\npromissory note or in a dematerialized form through any of the depositories\napproved by and registered with SEBI. Banks, FIs and PDs can hold commercial\npaper (CP) only in dematerialized form. Commercial paper (CP) will be issued at\na discount to face value as may be determined by the issuer. No issuer shall have\nthe issue of commercial paper (CP) underwritten or co- accepted.\n\n\n\ncommercial paper (CP)s are actively traded in the over the\ncounter (OTC) market such transactions however are to be reported on the FIMMDA\nreporting platform within 15 minutes of the trade for dissemination of trade\ninformation to market participation thereby ensuring transparency in the\nmarket.