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Commercial Paper

Commercial Paper

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Published by: devinhy on Mar 28, 2010
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07/23/2010

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Guidelines for Issue of Commercial PaperRef.No.IECD.2 /08.15.01/2001-02July 23, 2001The Chairmen/Chief Executives of All Scheduled Banks, Primary Dealers,Satellite Dealers and All-India Financial InstitutionsDear Sirs,
Guidelines for Issue of Commercial Paper
As you are aware, following issuance of revised guidelines for issue of commercial paper(CP) by Reserve Bank of India, vide Notification No. IECD/1/08.15.01/2000-01 datedOctober 10, 2000, Fixed Income Money Market and Derivatives Association of India(FIMMDA) was required to prescribe standardised procedure and documentation to befollowed by the participants in CP market in consonance with the international best practices.FIMMDA has since finalised its operational guidelines in consultation with RBI and hasmade public the same.2.The FIMMDA guidelines, as approved by RBI, necessitate certain amendments in theguidelines for issue of commercial paper contained in the RBI Notification No.IECD/1/08.15.01/2000-01 dated October 10, 2000 as amended vide Notification No.IECD / 2 /08.15.01/2000-01 dated April 30, 2001. Accordingly, the guidelines for issue of CP issuedby RBI in terms of the aforesaid notifications have been amended suitably. A copy of notification No. IECD/ 3 /08.15.01/2001-02 dated July 23, 2001 amending the saidnotifications is enclosed (Annexure I). Full text of the guidelines for issue of CPincorporating all the amendments issued till date is also enclosed for ready reference(Annexure II). Consequent to the amendments in guidelines for issue of CP, banks maysubstitute paragraph 13.B.1.8 in the Manual of Instructions issued by RBI (DBOD, DBS andIECD) by the enclosed guidelines.Yours faithfully,Sd/-(Smt R.K.Makhija)General ManagerEncl. As above
 
ANNEXURE I
Reserve Bank of IndiaIndustrial and Export Credit DepartmentCentral OfficeMumbai - 400 001Notification No.IECD/ 3 /08.15.01/2001- 02Dated: July 23, 2001
In exercise of the powers conferred by Sections 45J, 45K and 45L of the ReserveBank of India Act, 1934 (2 of 1934) and all the powers enabling it in this behalf, the ReserveBank of India, being satisfied that it is necessary in the public interest so to do, hereby directsthat the "Guidelines for Issue of Commercial Paper (CP)" issued vide Notification No.IECD1/08.15.01/2000-01 dated October 10, 2000 as amended vide NotificationNo.IECD/2/08.15.01/2000-01 dated April 30,2001 shall be further amended in the followingmanner with effect from July 23, 2001.(1)
 
In paragraph 7, the second sentence may be substituted by the following sentence:"The aggregate amount of CP from an issuer shall be within the limit as approved byits Board of Directors or the quantum indicated by the Credit Rating Agency for thespecified rating, whichever is lower."(2)
 
In paragraph 5, the following sentence may be added at the end of the paragraph:" The maturity date of the CP should not go beyond the date up to which the creditrating of the issuer is valid. "(3)
 
In paragraph 20, sub-item (iii) under item (b) may be read as under:"Certified copies of original documents verified by the IPA should be held in thecustody of IPA."(4)
 
Paragraph 21 may be substituted by the following paragraph:"Fixed Income Money Market and Derivatives Association of India (FIMMDA), as aself-regulatory organisation (SRO) for the fixed income money market securities, mayprescribe, in consultation with the RBI, for operational flexibility and smoothfunctioning of CP market, any standardised procedure and documentation that are tobe followed by the participants, in consonance with the international best practices."(5)
 
In Schedule III to the Notification specifying the format of certificate from IPA, theexpression " Original documents are held in our custody" may be substituted by theexpression " Certified copies of original documents are held in our custody".Sd/-(D.P.Sarda)Executive Director
 
Annexure IIGuidelines for Issue of CommercialPaper (CP) as amended up to July 23, 2001Introduction
Commercial Paper (CP) is an unsecured money market instrument issued in the formof a promissory note. CP, as a privately placed instrument, was introduced in India in 1990with a view to enabling highly rated corporate borrowers to diversify their sources of short-term borrowings and to provide an additional instrument to investors. Subsequently, primarydealers and satellite dealers were also permitted to issue CP to enable them to meet theirshort-term funding requirements for their operations. To keep pace with severaldevelopments in the financial market, and in the light of recommendations made by anInternal Group ,Reserve Bank , in exercise of the powers conferred by Sections 45 J, 45 Kand 45 L of the Reserve Bank of India Act, 1934 (2 of 1934) had issued revised guidelinesfor issue of CP vide Notification No. IECD/1/08.15.01/2000-01 dated October 10, 2000 asamended vide Notification No.IECD / 2 /08.15.01/2000-01 dated April 30, 2001, replacingall earlier directions/guidelines on the subject. Full text of the guidelines for issue of CPincorporating all the amendments issued till date is given below for ready reference.
Who can issue Commercial Paper (CP)
2.Corporates, primary dealers (PDs) and satellite dealers (SDs), and the all-Indiafinancial institutions (FIs) that have been permitted to raise short-term resources under theumbrella limit fixed by Reserve Bank of India are eligible to issue CP.3.A corporate would be eligible to issue CP provided - (a) the tangible net worth of thecompany, as per the latest audited balance sheet, is not less than Rs. 4 crore; (b) company hasbeen sanctioned working capital limit by bank/s or all-India financial institution/s; and (c) theborrowal account of the company is classified as a Standard Asset by the financing bank/s/ institution/s.
Rating Requirement
4.All eligible participants shall obtain the credit rating for issuance of CommercialPaper from either the Credit Rating Information Services of India Ltd. (CRISIL) or theInvestment Information and Credit Rating Agency of India Ltd. (ICRA) or the CreditAnalysis and Research Ltd. (CARE) or the FITCH Ratings India Pvt. Ltd. or such other creditrating agency (CRA) as may be specified by the Reserve Bank of India from time to time, forthe purpose. The minimum credit rating shall be P-2 of CRISIL or such equivalent rating byother agencies. The issuers shall ensure at the time of issuance of CP that the rating soobtained is current and has not fallen due for review.
Maturity
5.CP can be issued for maturities between a minimum of 15 days and a maximum uptoone year from the date of issue. The maturity date of the CP should not go beyond the dateup to which the credit rating of the issuer is valid.
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