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Commercial paper is a short-term unsecured promissory note issued by corporations and foreign governments for many large, creditworthy issuers. Commercial paper is a low-cost alternative to bank loans. Issuers are able to efficiently raise large amounts of funds quickly and without expensive Securities and Exchange Commission (SEC) registration by selling paper, either directly or through independent dealers, to a large and varied pool of institutional buyers. Competitive, market-determined yields in notes, whose maturity and amounts can be tailored to specific needs, can be earned by investors in commercial paper. Commercial paper has become one of America’s most important debt markets, because of the advantages of commercial paper for both investors and issuers. Commercial paper outstanding grew at an annual rate of 14 percent from 1970 to 1991. Commercial paper totaled $528 billion at the end of 1991. This chapter describes some of the important features of the commercial paper market. The first section reviews the characteristics of commercial paper. The second section describes the major participants in the market, including the issuers, investors, and dealers. The third section discusses the risks faced by investors in the commercial paper market along with the mechanisms that are used to control these risks. The fourth section discusses some recent innovations, including asset-backed commercial paper, the use of swaps in commercial paper financing strategies, and the international commercial paper markets. The money market is relevant to the corporate world in terms of short-term surplus or deficit of funds, which it experience. If a corporate has a shortterm surplus, it invests and if it faces deficit, then it borrows. A corporate needs short-term funds to manage its working capital requirements, pay taxes and meet other short-term commitments. These needs are fulfilled, usually, by obtaining short term finance from banks, trade credit from creditors, loans from inter corporate deposits (ICDSs) market, bill discounting and factoring, etc. corporates are always in search of new instruments to raise funds that provides them with an optimal combination of
low cost, flexible and desired maturity. One such instrument allowed by RBI in early ‘90s is the “COMMERCIAL PAPER”
Commercial paper is a short term, unsecured license promissory note issued at a discount to face value by well known or reputed companies, who carry a high credit rating and have a strong financial background. It is an unsecured obligation issued by a bank or corporation to finance its shortterm credit requirements like accounts receivable and inventories and it is usually issued at a discount reflecting the prevailing market interest rates. An unsecured, short-term debt instrument issued by a corporation, typically for the financing of accounts receivable, inventories and meeting short-term liabilities. Maturities on commercial paper rarely range any longer than 270 days. The debt is usually issued at a discount, reflecting prevailing market interest rates. ‘Investopedia explains 'Commercial Paper’ Commercial paper is not usually backed by any form of collateral, so only firms with high-quality debt ratings will easily find buyers without having to offer a substantial discount (higher cost) for the debt issue. A major benefit of commercial paper is that it does not need to be registered with the Securities and Exchange Commission (SEC) as long as it matures before nine months (270 days), making it a very cost-effective means of financing. The proceeds from this type of financing can only be used on current assets (inventories) and are not allowed to be used on fixed assets, such as a new plant, without SEC involvement.
1. Issuers Any private sector companies, public sector units, non-banking companies, primary dealers (PD), satellite dealers (SDs) etc, can raise funds through the Commercial papers. But the companies have to satisfy the eligibility criteria prescribed by RBI as discussed later. The condition laid by RBI restrict the entry of issuers into the CP market. 2. Investors CPs are generally open to all investors-individuals, banks, corporates and also Non-resident Indians (NRIs). But NRIs can only invest on a nonreportable and non – transferable basis. SEBI has permitted Foreign Institutional Investors (FIIs) also to invest in corporate debts instruments like CPs. FIIs were allowed to invest their short-term funds in such instruments too. Within a ceiling of the $ 1.5 billions of the total FIIs were inflows for debt funds set down by the RBI. Though the market is open to the above segments, usually, banks, large corporate bodies, public sector units with investible funds functions in the market.
Source :- (http://www.indianmoney.com/)
which is secured. The liquidity is high because it can be transferred by endorsement and delivery. the issuer can buy back his CP. and hence they are unsecured. To borrowers it implies low cost of funds. unlike bank finance. ` 4 . The CP market provides the borrower a cheaper source of funds with less paper work and formalities when compared to bank finance. and to investors it implies liquidity. Unlike CD. as it an unsecured liability.COMMERCIAL PAPER CHAPTER 2 COMMERCIAL PAPER 2. CPs is backed by the liquidity and earning powers of the issuer. Similarly.5 lakh as minimum investment. I) Commercial papers does not originate from a specific self liquidating transaction like normal commercial bills. marketability and returns. MATURITY Commercial paper has a minimum maturity period of 15 days and a maximum of 1 year. varied maturity and high yield (when compared to bank deposits). II) III) IV) 1. CP involves less paper work formalities. It is considered as an optimal combination of liquidity and returns in the short-term market. which generally arise out of specific trade transaction. but is not backed by any assets. Corporate prefer this mode of finance as they can determine the cost and maturity. size of each issue is Rs.5 lakh and the minimum. Investors prefer to invest in CPs due to high liquidity.1 FEATURES Commercial papers favor both borrowers and investors. 2. DENOMINATION AND SIZE CPs are issued in multiples of Rs.
The discount actually is the effective interest rate.. stamp duty. The following are the principle factors in pricing the CPs. While determining the discount rate. Banks thus view CPs as an alternative investment route. etc). T-bill rates.2 FACTORS AFFECTING PRICING CP being a short term instrument. COMPETING MONEY MARKET INVESTMENT PRODUCTS Interests rate son CPs are determine by the demand and supply factors in the money market and the interest rates on the other competing money market instrument such as Certificate of Deposits. lower call rates means cash surplus. Generally the merchant bankers (Issuing and Paying Agent) IPA on behalf of the corporate client. approaches various investors and takes quotes. it considers factors such s – prevailing call money rates. prime lending rates. 2. 1. its pricing is affected very much by call rates. Short term Forward premium and Treasury Bills.e. its primary and secondary markets determination of the interest rates. as the lenders in the CPs market are predominantly bank. After obtaining the quotas. maturity of the papers and other relevant expenses (such as brokerage.COMMERCIAL PAPER 3. the investment in CPs give ` 5 . rating agency’s fees. and expected amount of investment for the proposed CP for various maturity. 2. depends upon condition in short-term money market. The issue prices determine by the corporate issuing it in the following manner. ISSUE PRICE The CPs are issued to the investors at a discount to the face value. the IPA places the CP with the investors. Also. the discount rates. Commercial Bills. INTERBANK CALL RATES Since call rates affect all the other short-term rates and banks are the most important investors in CPs. Once the issue price and maturity are decided. the merchant bankers and issuing company compile the data and arrive at an optimal discount rate with a feasible maturity date of paper. call market affects the CP market rates. i.
3. but relatively lower than that of P1. LIQUIDITY Pricing and availability of funds under CPs are determined by the liquidity amongst banks and mutual funds.COMMERCIAL PAPER comparably higher yield than those obtained in banks deposits of similar maturity. rating for short term credit instrument). 4. 2. However. the company’s long term credit ratings. An adequate degree of safety regarding timely payment. CREDIT RATING Most of the secondary markets investments in CPs are done only in P1 (highest CRISIL.3 RATING NOTCHES FOR CPs The 5-notch scale on which the credit rating agencies rate the CPs is given below: P1: P2: P3: The degree of safety regarding timely payment is strong The degree of safety is strong. P4 P5: By adding “+” and “-“symbols after the rating. The instrument is expected to b in default on maturity or is in default. but the adverse affects due to the unforeseen circumstances will have more impact on the instrument than on the instrument rated as P1 and P2. two P1 + companies may not attract the same rate. which are the principle investors. it is further fine tuned ` 6 . to an extent. :The degree of safety regarding timely payment on the instrument is minimal and the effect of unfavorable conditions may be adverse. due to relative credit perception by the public and also.
On the other hand the merchant bankers or issuing or paying agent will locate the clients and get their quotas for different maturity periods as discussed above. the company needs to get t he CP credit rated by one of the approved credit rating agencies like CRISIL/ICRA/CARE/DCR. and forward the application to the RBI for intimation. and then it needs to select merchant bankers and an issuing and paying Agent (IPA) (mandatory) and obtain a resolution from the company board to issue the commercial papers. The company then has to approach its principle bankers with a proposal along with a credit rating certificate for approval.e. The banker will then scrutinize the same and verify whether all condition stipulated by RBI are met. it is known as dealer paper.5 ISSUING PROCEDURE A corporate planning to issue CP requires fulfilling the eligibility criteria prescribed by the RBI. If the company issues the paper directly to the investors without dealing with an intermediary. determining discount rate and appropriate maturity period..4 TYPES OF PAPERS Commercial Papers can be issued either directly or through a dealer. Generally. dealers also play advisory roles in timing the issue. However. After the resolution is passed. Market making in CPs has not reached the desirable levels. The companies going for direct paper will announce the current rates of CPs with various maturities so that the investors can choose the CPs with various maturities so that the investors can choose the CPs based on the requirement. A company can opt a ` 7 . In India. discounts rate and the quantum of the issue. it is possible for any dealers to [pick up the entire issue of CP of a company and then sell it in the market. 2. it is referred to as direct papers. The role of dealer in the CP market is to arrange for the private placement of the instrument. dealer/merchant banker) on behalf of its corporate client.COMMERCIAL PAPER 2. Then the company and merchant bankers /IPA decide the maturity. the CPs is usually placed with the investors with the help of issuing and paying agent. as prescribed by RBI. If a CP is issued by an intermediary (i.
Apart from the above discussed functions. it can raise the finance within a period of 2 weeks from the date on which the proposal is taken on record by the bank and it can issue the paper on a single day or in parts on different dates (but the whole issue should be redeemed on the same date). if a company plans to issue a CP for a span of 6 months. THE ROLE OF ISSUING AND PAYING AGENT.e. The role of IPA becomes mandatory while issuing CP. it holds CPs notes. every issuer of CP is treated as a fresh issue (including roll over) and the issuer need intimate RBI while doing so. delivers the notes to the investors and arrange for redemption on behalf of the corporate client. all the expenses related to the issue of CPs are borne by the issuers. If a company decides on a 2 month CP. ISSUE EXPENSES The issue expenses of CP include payment of stamp duty. No grace periods is allowed for the repayment of the paper. The issue proposed should be completed within a span of two weeks and the company should intimate the bankers to reduce the working capital limit to the extant of the amount raised. 2. i. 2 month or 3 months. 1. After the issue is completed within 3 days. Generally banks act as a Issuing and Paying Agent (IPA).COMMERCIAL PAPER various maturity periods within the stipulated span. brokers fees or issuing or paying agent fees. the company should intimate the RBI the actual amount raised through CPs. The company should pay the applicable stamp duty based on the maturity. based on the market quotes. The CP is not allowed to be underwritten. Who arranges the payment? The agent will receive the amount and brokerage for the services provided (the brokerage fees charged by them is given below). rating agencies fees and other expenses like charges levied by the banks for providing redemption facilities. The brokerage varies depending on the size of the issue and the maximum prescribed brokerage is as follows ` 8 . safeguard on behalf of the issuer. The issuer is supposed to make payment on the next working day. On the maturity the holder of the cp presents the instrument to the paying agent. If the maturity dates falls on the holidays. etc. it can raise the money in trances with different maturity periods of 1 month. etc.
Rs. I) II) III) IV) If the CP is issued for a special upto 3 months.75. Where an eligible class of investors is the list subscriber.025 3 months 0.00 per Rs.00 per Rs.1918.104.22.168. SFCs ) as per central Government Notification date: 16.000 or each part thereof (maturity value). STAMP DUTY ON COMMERCIAL PAPER The stamp duty payable by the issuer on CP is based on the period for which the CP/UPN is issued.1.COMMERCIAL PAPER Fees charged (% on the issue amount) Period of CP 0.100 6 months and above 3.000 (maturity value) for respective slab stated above.50 per Rs. There is certain concession in stamp duty applicable under Art 12 of Indian stamp act 1899 available to certain class of investors.05. Rs.1.00 per Rs.000 or each part thereof of (maturity value).1. Then the application stamp duty structure is given below. and Rs.In other class of investors stamp duty applicable would be Rs.1. Rs.1. IDBI.50 per Rs. If the CP is for above 9 months upto 12 months-Rs.050 6 months 0. If the CP is for above 3 months upto 6 months-Rs.000 or each part thereof (maturity value).1. If the CP is for above 6 months upto 9 months-Rs.50.000 or each part thereof (maturity value).1.1. V) ` 9 . ( Commercial and cooperative banks and specified FIs like IFCI.2.0. Every renewal is considered as a fresh issue and it involves expenses.3.
There are very few markets makers who offer two way quotes in Commercial Papers. every issue of commercial paper including renewal is treated as a new/fresh issue.20%. UNDERWRITING AND STANDBY FACILITIES From the beginning. a company needs to optimize between the interest cost and issue cost while deciding the terms of maturity. 6. 1994. the brokerage charged is in the range of 0. When such a facility is provided by a bank. if an issue is raised for a long period. On maturity the instrument is presented to the paying agent for receiving payments. RBI attempted to rectify this anomaly by abolishing standby facility in October. In such instances. 4. The CP being a discount paper does not attract income tax. banks provide standby facility to redeem the sum at maturity. a company may experience a liquidity crunch when the CP matures. Hence. As the amount raised by CP is utilized to reduce the working capital finance. which is the difference between the cost of acquisition and resale value.05%-0. as the banks indirectly assured repayment of the CPs to the investors. Hence a company must consider interest paid and issue expenses borne while determining the duration of CP. it allowed banks to sanction standby arrangement to the companies issuing a CP. As there is no roll over. However. The company cannot have any grace period and it is liable to make payments whenever the paper matures. For the intermediary market deals. i. but the trading income. the instrument is secured indirectly. attracts income tax.e. the RBI did not permit underwriting of CPs. SETTLEMENT The transfer is done through endorsement and delivery. the company may have to pay more interest.COMMERCIAL PAPER Hence. 5. ` 10 . it has to incur issue expenses each time. SECONDARY MARKET AND TRADING This transaction in secondary market as CPs are generally placed with them. to make the CP market more realistic. and if it reused for a short period. The secondary market transaction does not attract stamp duty. The real risk associated with corporates was not assessed properly. The secondary market transaction does not attract stamp duty.
the borrowers can reduce the outstanding amounts and when he gets surplus funds. This results in a reduced effective interest cost. The cost of funds for the company is reduced because it can raise 75% of its working capital through the Commercial Paper issue at an interest rate lower then the interest rate of borrowing from the banks. The company’s image will be improved casting a positive effect on the long-term borrowing programs of the company. the CPs yields relatively higher returns then a similar maturity banks deposits. This is because of the administrative lag in aligning the back lending rates with the overall interest rate.6 MERITS OF COMMERCIAL PAPER The paper work involved in raising the funds through the Commercial Paper is very less because more funds can be procured without any underlying transaction. TAXATION For the corporate: The discount is treated as an interest expense. In the cash credit system of lending. this would amount to other Income/Interest Incomes. The flexibility provided by the instrument enables the company to raise additional funds especially when the market is favorable. Though this security are unsecured. Losses are allowed as business losses for banks and investments companies. deductible for tax purpose. ` 11 . For. For the investors: Profit/loss on sale of investment Income is taxed under the head “Profit and losses from business and profession”.COMMERCIAL PAPER 7. the standby facility its holders confidence to get the return on the due dates. From the investor’s point of view. can take advantage of a situation by following the money market rates. which borrow funds through the issue of CP. The companies. 2. The level of access to the national by banks gives CP market is considered as a key factor to accept the issue in the international market. corporate that invests in other company’s CPs. The holder can get quick payments from the company’s banker on its behalf as soon as the permissible working capital limit is achieved.
com/financial- CHAPTER 3 EVOLUTION AND DEVELOPMENT OF COMMERCIAL PAPER MARKET 3. The new guidelines are expected to provide considerable flexibility to participants and add depth and vibrancy to the CP market while at the same time ensuring prudential safeguards and transparency. RBI issued guidelines on issue of CPs in January. while providing the investors higher yields than they could obtain from the banking system.1 HISTORY OF COMMERCIAL PAPER The concept of raising funds through commercial paper is new to Indian corporate. a draft of the revised guidelines as also the Report of the Internal Group was circulated in July.COMMERCIAL PAPER Source :management/) (http://www. 1990. As ICDs were unsecured and the transactions were not transparent. In 1989. the RBI announced its decision to introduce CPs. Taking into account the suggestions received from the participants. At the same time. the guidelines will enable companies in the services sector to more easily meet their short-term working capital needs. The working group was of the opinion that the CP market had the advantage of giving high-rated corporate borrowers cheaper funds than they could obtain from banks. the guidelines have now been finalized. It was indicated in April. It was also allowed because the RBI desired to discourage the practice of lending in the Inter Corporate Deposit (ICD) market. It was launched “with a view to enable highly rated corporate borrowers to diversify their sources of short-term borrowings and also provide an additional instrument to investors”. banks and FIs will ` 12 . The introduction of CPs is a result of the suggestions of the Working Group on Monday Market in 1987. Accordingly. In particular. 2000 policy statement that the current guidelines to issue the CPs would be modified in the light of recommendations made by an Internal Group. by which certain categories of borrowers could issue CPs in the Indian Money Market. and these guidelines later were revised many times to facilitate the growth of the market. 2000.mbaknol. the RBI felt that CPs may serve as a good substitute for such funds. Initially.
The RBI permitted the Primary Dealers (PDs) to raise the funds for their operations by issuing CPs hoping that this would. In October. Earlier. it is Rs. The amount a company was allowed to raise through CP was limited to 20 percent of its Maximum Permissible Bank Finance (MPBF) and the same was raised to 75 percent in October. Similarly. The minimum credit rating required was A1 and P1 and the same was reduced to A2 and P2 in October.5 crore and. the minimum was further reduced to 15 days.50 lakh (face value). However.25 crore.10 Crore as per the latest balance sheet.15 crore and later to Rs. Since the concept of MPBVF was abolished recently. the company willing to raise CP had to take prior approval from the RBI which is not essential now. Later. further to Rs.4 crore in October. it permitted even unlisted companies to issue CPs. a company was eligible to issue CP only if it had tangible new worth of Rs. the company which was listed on a stock exchange was eligible to issue a CP.10 lakh and the minimum size of an issue to a single investor was Rs. Similarly. 1993 the minimum amount for a single investor was reduced to Rs. it was reduced to Rs. The RBI had taken further steps to activate the market for CPs as there were hardly any market makers offering two-way quotes in CPs. was reduced to Rs. The standby facility which was allowed to facilitate redemption has now been abolished to activate the market. 1993 and the minimum was reduced to 30 days in 1997. The Discount and Finance House of India (DFHI) was expected to be a market maker by giving two-way quotes. Earlier. now a corporate can raise up to 100 percent of its fund-based working capital (without increasing its overall short-term credit). According to the initial guidelines.25 lakh in multiples of Rs. the working capital requirement limit.5 lakh in multiples of Rs. in ` 13 .5 lakh. 90. Earlier.4 crore in October. At present. later this condition was relaxed. 93. which was Rs. In April. The RBI initially stipulated that the company should be listed on one or more of the stock exchanges. 93. the growth was not as appreciable as expected. the maturity period of CP was a minimum of 3 months and a maximum limit was extended to 1 year in October.5 lakh. Though the above conditions were relaxed modified for the growth of CPs. 93. the denomination was Rs. 93.COMMERCIAL PAPER have the flexibility to fix working capital limits duly taking into account the resource pattern of companies’ finances including CPs. in later guidelines. The changes in the guidelines originally issued are summarized hereunder.
3 FUTURE OUTLOOK The RBI is constantly watching the growth of the CP market. a company may not be able to come out with a CP issue if the difference in the effective cost and PLR is marginal. Otherwise. to the discount. Since the cost of CP includes rating charges. The stringent conditions laid down by the RBI have made entry of good but small companies difficult. there are no tax benefits. II) III) 3.2 REASON FOR UNDERDEVELOPMENT The experts attribute the following reasons for underdevelopment: I) Restricted entry of corporate into this market. which is usually the rate the top class companies will be obtaining. the individuals and other small investors are away from this market. it will not be prudent for a corporate to issue CP. The minimum size of investment for an individual investor is too high. in spite of which RBI insists upon a fresh rating (less than 2 months old) every time a CP is issued. 3. enable the PDs to access greater volumes of funds thereby enhancing the level of activity in the secondary market. this in turn pushes up the cost of issue to the issuer. A company is prompted to issue a CP if the cost of funds is lower than the PLR of the banks. All these costs have to be incurred each time a company issues a CP thus increasing the effective cost. While doing so. For example. stamp duty. IPAs’ fee in addition. Hence. and it is modifying/relaxing the guidelines for the enhancement of the same. ` 14 . RBI can consider the following measures to facilitate the growth of the market: I) Relax stringent conditions to reduce the overall cost of a CP. the effective cost should be lower than the PLR. Hence. the rating fees charged by rating agencies is relatively high.COMMERCIAL PAPER turn.
Source : . Optionally. it is better to have a fallback. depending on the credit rating. As a matter of trade usage. a corporate gets working capital limits sanctioned by his banker or consortium of bankers and draws credit as and when required. However there are established usages of a means of finance and any remarkable deviation from the erstwhile norms merits discussion. 11. ` 15 . ranging between 7.COMMERCIAL PAPER II) Banks were earlier permitted to sanction standby facility to the companies issuing CPs so that upon redemption the working capital limits would be automatically restored.indianmba. particularly the subsequent investor.(http://www. for which they are entitled to charge fees. very few corporates get the facility of standalone CPs. through a short term instrument. needs the comfort of fallback on the working capital limits. According to guidelines. the investor.The cost of a CP is much lower. a CP can be issued as ‘standalone’ product and banks have the flexibility to fix working capital limits taking into account the resource pattern of the company’s financing including CPs. from the issuer’s perspective as well. Though as a matter of policy CPs are not parts of working capital limits.40 to 9. The cost of this cash credit or overdraft is the bank’s PLR at the minimum or anything over and above the PLR. It makes perfect commercial sense to raise money through CPs. If the existing investor is not interested in re-investing.1 COMMERCIALISATION OF COMMERCIAL PAPER There are no hard and fast rules regarding the means and methods of finance for a corporate. The PLR as of now is say. This way.75%.5%. as market conditions may turn adverse at the time of maturity of the CP. i. As we all know.com/) CHAPTER 4 COMMERCIAL PAPER IN FOREIGN COUNTRIES 4. Many issuers issue CPs. ‘perpetually’. with a revolving facility at a maturity. fundamentals and negotiating powers of the corporate. all are meant to keep the wheels of the industry moving. the corporate get access to long term funds. but corporate would not like to increase the cost of funds. banks may provide standby credit facility. saving approximately 4 percentage points in cost of funds.e. However.
are investing extensively in CPs. thereby saving cost vis-à-vis regular working capital. i. In the bargain. apart from the advantages discussed above. who invest in CPs. short term funds can be used for long term purposes. Even if the savings is not 4 percentage points as disclosed above. the basic objective of a business enterprise is to produce goods and services in the most efficient manner with resources at the lowest cost. the market for CPs is getting expanded. In this fashion. Other nations came to ` 16 . The data published by RBI shows a major development in the outstanding CP amount. There is a typical set of investors: banks. the major chunk of inflows in mutual funds is in liquid/money market schemes. who are sitting on surplus cash. it renders the bank able to keep the corporate within the consortium. It is a win-win situation. by funding long-term projects through short-term means. for project financing. The corporate can resort to CC/OD during the interlude. The higher cost of CC/OD would be incurred only for a few days during the negligible period. as there is a dearth of good quality borrowers and it is important to keep them within the consortium. it means lower cost of funds.2 COMMERCIAL PAPERS IN OTHER COUNTRIES The concepts of raising money through Commercial Papers have been known to the US markets since the 18th century. which would entail a lot of paraphernalia and higher cost. 4. Banks and financial institutions are happy to invest in CPs even at a lower rate. Now-a-days. it is a matter of a few days only. Conventionally. apart from call and call-linked instruments. insurance companies. Of late. For the company. a corporate would approach a termlending institution or a bank.e. the objectives of a corporate are different from those of a bank. which is beneficial both to the issuer as well as to the investor. The rise in volume of CP issuances can be traced to the profile of investors. Even if there is a problem in negotiating with the existing or prospective investor.COMMERCIAL PAPER the corporate can get another investor to continue with it. Though it leads to a asset-liability mismatch. A major avenue of investment for mutual funds is commercial papers. In this age of competition. mutual funds and financial institutions. it is substantial. LIC and GIC. income schemes and gilt schemes. and corporate would be happy to oblige by supplying papers.
after Repos. Finance Paper and Corporate Paper depending on the nature of the issuing firm. The US firms started selling open market paper as a substitute to the customary bank loan that was required for working capital. liquid business concerns.3. PURPOSE The funds raised by means of CPs by corporate % are used for current transactions – such as purchase of inventories. bank holding companies. Banks. By the end of 1998. ` 17 . The CPs are generally issued by the public utilities. Commercial Papers (CPs) are defined as short-term. insurance companies.3 INVESTORS IN COMMERCIAL PAPER Commercial Paper is the second largest money market instrument in the US. American Commercial Paper is rated by one or more credit rating agencies and as such the credit risk on it is perceived to be low. payment of taxes.1. They are referred by different names such as Industrial Paper. 4. state and local governments and non-banking financial institutions mostly buy CPs. the investors in commercial paper were Investments Companies Insurance Companies Cities.COMMERCIAL PAPER know of it only in the earlier part of the 19th century. State Governments & Municipal Boards Banks Companies Others TOTAL 47 % 11 % 8% 15 % 3% 16 % 100 4.4 trillion. The liquidity of the instrument is also very low. unsecured usance promissory notes issued at a discount to face value with fixed maturity by well-known companies that are financially strong and carry high credit ratings. and finance companies. by the end of 1999. insurance companies. surpassing T-bills. with a total value exceeding $ 1. but existent. transportation companies.
e. they can be tailored to the user requirements. They are normally issued in a bearer form at a discount to face value.3. FEATURES CPs are regarded as highly safe.3 TYPES OF COMMERCIAL PAPER There are two major types of commercial paper – 1. CPs is considered to be more flexible in terms of maturity. Dealer Paper 1. But. i. The maturity period varies from 1 to 270 days. They are generally issued in multiples of $1000 and in denominations designed to meet the needs of the buyer. IV) V) 4. 4.3. Direct Paper: ` 18 .2. but. liquid and quality instruments for investment in private sector. Direct Paper 2. and they are backed by the general credit standing of the issuing companies and by the lines of credit they might be in a position to obtain from banks. I) II) III) They are negotiable by endorsement and delivery. CPs are unsecured.COMMERCIAL PAPER meeting payrolls and to meet other short-term rather than long-term obligations. it should not exceed more than 270 days. the issues of CPs on a fixed interest basis are also seen in the market.
this paper must be sold in large volumes to cover the substantial costs of distribution and marketing. Companies using dealers to place their paper are generally smaller. 2.COMMERCIAL PAPER The Direct Paper is issued by large finance companies and bank holding companies deal directly with the investor rather than use a dealer as an intermediary. And also these companies need to pay fees to banks for supporting lines of credit. It is mainly issued by non-financial companies and finance companies. bank trust departments). An open rate method is followed by which the company receives some money in advance but the balance depends on the performance of the issue in the open market. less frequent borrowers than issuers of direct paper. Though the issuers of direct paper do not have to pay any dealers’ commission.helium. to the rating agencies and to agents (i.e. Dealer Paper: The Dealer Paper is issued by dealers on behalf of their corporate customers. The issuing company sells the paper directly to the dealer at a discount and commission. Hence. Source : .com) CHAPTER 5 ` 19 .(http://www. these companies must operate a marketing division to maintain constant interaction with active investors. The dealer will resell it at the highest possible price in the market.
000.000.000.com/) CHAPTER 6 ` 20 .. Determine the rate of return which A earns.COMMERCIAL PAPER COMPUTING RATE OF RETURN ON COMMERCIAL PAPER The rate of return on a commercial paper is computed by using the following formula in a secondary market transaction: DR = Par Value – Purchase Price * 360 (Par Value) (Days To Maturity) This could be well understood by the following example – Mr. A purchased a commercial paper of Maxwell Inc. The company issued CP with a face value of $ 1.8 % Source : .000) (180) =0.000 – 976.qfinance. issued for 3 months in the market for $ 976.048 or 4. DR = Par Value – Purchase Price * 360 (Par Value) (Days to Maturity) = 1.(http://www.000.000.000 * 360 (1.
collects interest and principal payments and passes the funds to SPE. These are issued by investment grade corporations at a fixed interest rate. the investing firm notifies the issuing company as to how much paper it will purchase on that particular day. papers with a maturity period of 9 -10 months. The issuing customer usually services the underlying receivables. These papers suit companies with substantial quantities of medium-term assets as they have longer maturities when compared to conventional CPs and IOUs. and these loans or receivables are removed from the issuing companies’ balance sheet and are placed in a Special-Purpose Entity (SPE). This paper is nothing but. 6.COMMERCIAL PAPER INNOVATIONS AND DEVELOPMENTS IN COMMERCIAL PAPER 6. Medium-term notes are unsecured obligations. and the issuing company in turn issues a paper on the maximum agreed amount. In the process a bank is chosen to service the receivables supporting the paper issue. Asset-backed commercial paper gives credit at a lower interest rates to the corporates.2 COMMERCIAL PAPER – LATEST DEVELOPMENTS ` 21 . CPs are likely to have good future so long as can be tailored to meet the needs of both the buyers and issuers in terms of maturity.1 INNOVATIONS OF COMMERCIAL PAPER Master note is a new financial paper issued by finance companies to bank trust departments and other permanent money market investors. In an arranged agreement. The interest on daily papers is pooled and taken by the investors during the current month. These packages are issued in the form of a paper. a pool of loans or credit receivables made into packages. liquidity and returns. SPE issues the commercial paper to cover discount price and uses the proceeds for purchase of the receivables.
as soon as arrangements for such dematerialization are put in place. 2000. As the existing arrangements for dematerialized holding for CP are now considered adequate and satisfactory. PDs and SDs were advised to invest and hold CP only in dematerialized form. in consonance with the international best practices. As regards the equity instruments they are permitted to be held by the above mentioned institutions only in dematerialized form.(http://www. Similarly they are also permitted to make fresh investments and hold bonds. privately or otherwise only in demat form. FIs.com/) CHAPTER 7 ` 22 . Preference for dematerialized Holding: As a part of new guidelines to issue CPs released in October. FIs. PDs are permitted to make fresh investments and hold CP only in dematerialized form. from the date notified by SEBI. Documentation and Procedure: As part of the guidelines on new issue of CP released in October. FIMMDA has been in dialogue with RBI and in the process of devising such standard procedures and documentation. FIMMDA would circulate a draft of these guidelines among its members and other market participants. Source : . 2.themanagementor. banks.COMMERCIAL PAPER 1. FIMMDA was entrusted with the task of prescribing standard procedures and documentations that are to be followed by the participants. 2000. banks. debentures. Before finalization. In this regard.
45K and 45L of the Reserve Bank of India Act. Guidelines for issue of CP are presently governed by various directives issued by the Reserve Bank of India. Now. A corporate would be eligible to issue CP provided a. In pursuance of the Statement on Monetary and Credit Policy for the Year 2000-2001. was introduced in India. Primary Dealers (PDs) and Satellite Dealers (SDs). the tangible net worth of the company. as a privately placed instrument. ` 23 .4 crore. the Reserve Bank in exercise of the powers conferred by Sections 45J. b. 1. and c. it has been decided to modify the guidelines in the light of recommendations made by an Internal Group.COMMERCIAL PAPER GUIDELINES FOR ISSUE OF COMMRECIAL PAPER INTRODUCTION Commercial Paper (CP) is an unsecured money market instrument issued in the form of a promissory note. Subsequently. 1934 (2 of 1934) issues the following guidelines replacing all earlier directions/guidelines on the subject. as per the latest audited balance sheet. 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. company has been sanctioned working capital limit by bank/s or All-India financial institutions. the borrowable account of the company is classified as a Standard Asset by the financing bank/s/institution/s. as amended from timer to time. primary dealers and satellite dealers were also permitted to issue CP to enable them to meet their short-term funding requirements of their operations. Who can issue Commercial Paper (CP) Corporate. is not less than Rs. to keep pace with several developments in the financial market. and the All India Financial Institutions (FIs) that have been permitted to raise short-term resources under the umbrella limit fixed by Reserve Bank of India are eligible to issue CP. CP.
5 lakh or multiples thereof. term deposits. (CARE) or the FITCH Ratings India Pvt. 3. certificates of deposit and inter-corporate deposits should not exceed 100 percent of its net owned funds. The minimum credit rating shall be P-2 of CRISIL or such equivalent rating by other agencies. Limits and the Amount of issue of Commercial Paper CP can be issued as a “stand alone” product. 4..5 lakh (face value). have the flexibility to fix working capital limits duly taking into account the resource pattern of companies’ financing including CPs. An FI can issue CP within the overall umbrella limit fixed by the RBI i. however. for the purpose. (ICRA) or the Credit Analysis and Research Ltd. term money borrowings. The aggregate amount of CP from an issuer shall be within the limit as approved by its Board of Directors. The issuers shall ensure at the time of insurance of CP that the rating so obtained is current and has not fallen due for review.. The total amount of CP proposed to be issued should be raised within a period of two weeks from the date on which the issuer opens the issue for ` 24 . issue of CP together with other instruments viz. Rating Requirement All eligible participants shall obtain the credit rating for issuance of Commercial Paper from either the Credit Rating Information Services of India Ltd. Denominations CP can be issued in denominations of Rs. 5. Banks and FIs will. Or such other Credit Rating Agencies as may be specified by the Reserve Bank of India from time to time. Maturity CP can be issued for maturities between a minimum of 15 days and a maximum up to 1 year from the date of issue. as per the latest audited balance sheet.COMMERCIAL PAPER 2.e. Amount invested by single investor should not be less than Rs. Ltd. (CRISIL) or the Investment Information and Credit Rating Agency of India Ltd.
each CP shall have the same maturity date. As regards the existing stock of CP. investments by FIIs would be within the limits set for their investments by Securities and Exchange Board of India (SEBI). Mumbai through the Issuing and Paying Agent (IPA) within three days from the date of completion of the issue. Reserve Bank of India.COMMERCIAL PAPER subscription. including renewal. CP will be issued at a discount to face value as may be determined by the issuer. Every CP issued should be reported to the Chief General Manager. Investment in Commercial Paper CP may be issued to and held by individuals. if both the issuer and investor agree for the same. Industrial and Export Credit Department (IECD). CP may be issued on a single date or in parts in different dates provided that in the later case. Central Office. banking companies. Non-Resident Indians (NRIs) and Foreign Institutionals (FIIs). Mode of Issuance CP can be issued either in the form of a promissory note (Schedule I) or in a dematerialized form through any of the depositories approved by and registered with SEBI. other corporate bodies registered or incorporated in India and unincorporated bodies. 6. No issuer shall have the issue of Commercial Paper underwritten or coaccepted. the same can continue to be held either in physical form or can be dematerialized. Every issue of CP. However. 8. should be treated as a fresh issue. incorporating details as per Schedule II. 7. Who can act as an Issuing and Paying Agent (IPA)? Only a schedule bank can act as an IPA for issuance of CP. 9. Preference for Dematerialized Form ` 25 .
etc. However. 10. however. Standby Facility In view of CP being a “stand alone” product. the holder of the CP shall present the instrument for payment to the issuer through the IPA. Financial Institutions.COMMERCIAL PAPER While option is available to both issuers and subscribers. it would not be obligatory in any manner on the part of banks and FIs to provide standby facility to the issuers of CP. 11. credit enhancement by way of standby assistance/credit backstop facility. issuing company shall issue physical certificates to the investor or arrange for crediting the CP to the investor’s account with a depository. as soon as arrangements for such dematerialization are put in place. Procedure for Issuance Every issuer must appoint an IPA for issuance of CP. Payment of Commercial Paper The initial investor in CP shall pay the discounted value of the CP by means of a crossed account payee cheque to the account of the issuer through IPA. 13. Banks. the holder of the CP will have to get it redeemed through the depository and receive payment from the IPA. Investors shall be given a copy of IPA certificate to the effect that the issuer has a valid agreement with the IPA and documents are in order (Schedule III). when the CP is held in physical form. However. based on their commercial judgment and as per terms prescribed by them. Role and Responsibilities ` 26 . have the flexibility to provide for a CP issue. After the exchange of deal confirmation between the investor and the issuer. 12. issuers and subscribers are encouraged to prefer exclusive reliance on dematerialized form of issue/holding. PDs and SDs are advised to invest and hold CPs only in dematerialized form. these should be within the prudential norms as applicable and subject to specific approval of the Board. The issuer should disclose to the potential investors its financial position as per the standard market practice. when the CP is held in demat form. to issue/hold CP in dematerialized or physical form. Banks and FIs would. On maturity of CP.
Credit Rating Agency (CRA) : i) Code of Conduct prescribed by the SEBI for CRAs for undertaking rating of capital market instruments shall be applicable to them (CRAs) for rating CP. issuers would now have more flexibility. It should also certify that it has a valid agreement with the issuer (Schedule III). have to ensure that the guidelines and procedures laid down for CP issuance are strictly adhered to. clearly indicate the date when the rating is due for review. Fixed Income Money Market and Derivatives Association of India (FIMMDA). ii) IPA has to verify all the documents submitted by the issuer viz. Issuing and Paying Agent (IPA) : i) IPA would ensure that issuer has the minimum credit rating as stipulated by the RBI and amount mobilized through issuance of CP is within the quantum indicated by CRA for the specified rating. copy of board resolution. c. CRA shall at the time of rating. iii) Original documents verified by the IPA should be held in the custody of IPA. Accordingly. signatures of authorized executants (when CP in physical form) and issue a certificate that documents are in order.. they would also have to closely monitor the rating assigned to issuers vis-à-vis their track record at regular intervals and would be required to make its revised ratings public through its publications and websites. b. ii) Further. in consonance with the ` 27 . however. as a Self-Regulatory Organisation (SRO) for the fixed income money market securities.COMMERCIAL PAPER a. for operational flexibility and smooth functioning of CP market. Issuers would. Issuer: With the simplification in the procedures for CP issuance. the credit rating agency would henceforth have the discretion to determine the validity period of rating depending upon its perception about the strength of the issuer. iii) While the CRAs can decide the validity period of credit rating. may prescribe. any standardized procedure and documentation to be followed by the participants.
Source : . Non-applicability of Certain Other Directions Nothing contained in the Non-Banking Financial Companies Acceptance of Public Deposits (Reserve Bank) Directions.(http://www.COMMERCIAL PAPER international best practices. Till such time. 1998 shall apply to any NonBanking Financial Company (NBFC) insofar as it relates to acceptance of deposit by issuance of CP. Violation of these guidelines will attract penalties prescribed in the Act by the RBI and may also include debarring from the CP market.org.ambi. the procedures/documentations prescribed by IBA should be followed. in accordance with these Guidelines. 14.in/) CHAPTER 8 PROFORMA ` 28 .
in the state in which it is to be issued Serial No. Each endorsement should be written within the space allotted. (If such date happens to fall on holiday. Issued at: _____________________ Date of issue: ____________________ (Place) Date of Maturity: ___________________________ without days of grace. Name of the Issuing Company Stamp duty to be affixed as in force.) Authorized Signatory Confidential ` 29 . payment shall be made immediate preceding working day) For value received ______________________________ hereby (Name of Issuing Company) promises to pay __________________ (Name of Investor) Or order on the maturity date as specified above the sum of Rs __________ (in words) upon presentation and surrender of this Commercial Paper at____________________________for and on (Name of the Issuing and Paying Agent) behalf of _______________________ (Name of Issuing Comp.COMMERCIAL PAPER All endorsements upon the commercial paper must be clear and distinct.
amount of Commercial Paper Proposed to be issued (Face value) : B. IECD. as amended from time to time. Commercial Paper – Program of issue In terms of the Directions issued by the RBI. Name of the Issuer Registered Office and Address : Whether Issuer is a FERA Company : Business Activity Name/s of Stock Exchange/s With whom shares of the company Are listed (not applicable to Government Companies : Tangible net worth as per latest Audited balance sheet (copy enclosed): A. ii.89/90 dated 11th December. vii.1989. iv. To be submitted to Financing banking company To. viii. Tenor (Period of issue) Rating obtained from the Credit Rating Information Services of India Ltd.COMMERCIAL PAPER Proforma of proposal to be submitted By the issuing company (issuer) for Issue of Commercial Paper. v. (CRISIL) or any other Agency approved by the Reserve Bank (A copy of the rating certificate Should be enclosed) : : vi. iii. / 89(CP). Dear Sir. : : For and on behalf of (Name of Issuing Company) Authorized Signatory CERTIFICATE ` 30 . vide Notification No. we propose to issue Commercial Paper as per details furnished hereunder: i.
scribd.COMMERCIAL PAPER We hereby certify that we have verified the signature of the executants of the attached Commercial Paper bearing: Sr.(http://www. No. ____________ which tally with the specimen signature filled by ____________________________ (Name of the Issuing Company) (Authorized Signatory/signatories) Place: _______________ Date: ________________ (Name of financing banking company) Source : .com/) CHAPTER 9 ` 31 . ____________ Dated ___________ for Rs.
short term loan issued by a corporation. Here by I conclude that. borrowing short-term money from banks is often a laborious and annoying task. Doing this project was a delightful experience for me as I got to know a lot about Commercial Paper and a lot about Banks functioning. The desire to avoid banks as much as possible has led to the widespread popularity of commercial paper. many corporations. Furthermore. typically only companies with high credit rating and credit worthiness issue commercial paper. CHAPTER 10 REFERENCE ` 32 . Therefore.COMMERCIAL PAPER CONCLUSION Commercial Paper is an unsecured. commercial paper is a very safe investment because the financial situation of a company can easily be predicted over a few months.
indianmoney.org.mbaknol.com/financial-management/ http://www.indianmba.com/ http://www.qfinance.ambi.COMMERCIAL PAPER Books:Advance financial arrangement By – Dr.in/ http://www.com/ http://www.helium.com/ http://www. Kohok (Page No.com/ http://www.com http://www. M. 40 to 46) Financial Market & Instruments Journal:8th Edition – 2004 Everest Publishing House – Pune Websites:http://www.themanagementor.com/ CHAPTER 11 ANNEXURE ` 33 .A.scribd.
the tangible net worth of the company. 4 crore b. A corporate would be eligible to issue CP provided – a. 2. Who can issue CP? Corporate. 3. 5. is not less than Rs. Whether all the corporate would automatically be eligible to issue CP No. 4. Subsequently. Why it was introduced? It was introduced in India in 1990 with a view to enabling highly rated corporate borrowers/ to diversify their sources of short-term borrowings and to provide an additional instrument to investors. company has been sanctioned working capital limit by bank/s or all-India financial institution/s. What is Commercial Paper (CP) ? Commercial Paper (CP) is an unsecured money market instrument issued in the form of a promissory note.COMMERCIAL PAPER Questionnaire 1. primary dealers and satellite dealers were also permitted to issue CP to enable them to meet their short-term funding requirements for their operations. When it was introduced? It was introduced in India in 1990. primary dealers (PDs) and the All-India Financial Institutions (FIs) are eligible to issue CP. as per the latest audited balance sheet. and ` 34 .
or such other credit rating agency (CRA) as may be specified by the Reserve Bank of India from time to time. (CRISIL) or the Investment Information and Credit Rating Agency of India Ltd. they can issue CP within the overall umbrella limit fixed by the RBI i.. certificates of deposit and inter-corporate deposits should not exceed 100 per cent of its net owned funds. for the purpose. 7 What is the minimum and maximum period of maturity prescribed for CP? CP can be issued for maturities between a minimum of 15 days and a maximum up to one year from the date of issue. All eligible participants shall obtain the credit rating for issuance of Commercial Paper either from Credit Rating Information Services of India Ltd.. 8 What is the limit up to which a CP can be issued? The aggregate amount of CP from an issuer shall be within the limit as approved by its Board of Directors or the quantum indicated by the Credit Rating Agency for the specified rating. The issuers shall ensure at the time of issuance of CP that the rating so obtained is current and has not fallen due for review and the maturity date of the CP should not go beyond the date up to which the credit rating of the issuer is valid. the borrower account of the company is classified as a Standard Asset by the financing bank/s/ institution/s. 6 Is there any rating requirement for issuance of CP? And if so. issue of CP together with other instruments viz. As regards FIs. whichever is lower. The minimum credit rating shall be P-2 of CRISIL or such equivalent rating by other agencies. (CARE) or the FITCH Ratings India Pvt. term money borrowings.e. (ICRA) or the Credit Analysis and Research Ltd. as per the latest audited balance sheet. what is the rating requirement? Yes.COMMERCIAL PAPER c. term deposits. ` 35 . Ltd.
amount invested by single investor should not be less than Rs. FIs. In what denominations a CP that can be issued? CP can be issued in denominations of Rs. Whether CP can be held in dematerilaised form? Yes. 13. 11. CP can be issued either in the form of a promissory note (Schedule I) or in a dematerialised form through any of the depositories approved by and registered with SEBI. shall be treated as a fresh issue. However. Who can act as Issuing and Paying Agent (IPA)? Only a scheduled bank can act as an IPA for issuance of CP. Whether CP can be issued on different dates by the same issuer? Yes. Whether CP is always issued at a discount? ` 36 . other corporate bodies registered or incorporated in India and unincorporated bodies. banking companies.5 lakh or multiples thereof.COMMERCIAL PAPER 9. every issue of CP. Non-Resident Indians (NRIs) and Foreign Institutional Investors (FIIs) etc. each CP shall have the same maturity date. Who can invest in CP? Individuals. investment by FIIs would be within the limits set for their investments by Securities and Exchange Board of India (SEBI.5 lakh (face value). can invest in CPs. 12. CP may be issued on a single date or in parts on different dates provided that in the latter case. including renewal. Further. How long the CP issue can remain open? The total amount of CP proposed to be issued should be raised within a period of two weeks from the date on which the issuer opens the issue for subscription. 10. 15. 14. Banks. PDs and SDs are directed to hold CP only in dematerialised form. However.
(b) When the CP is held in demat form.COMMERCIAL PAPER Yes. the holder of the CP will have to get it redeemed through the depository and receive payment from the IPA. etc. Yes. b. Whether CP can be underwritten? No issuer shall have the issue of Commercial Paper underwritten or co-accepted. On maturity of CP. CP will be issued at a discount to face value as may be determined by the issuer. the holder of the CP shall present the instrument for payment to the issuer through the IPA. 19. Banks and FIs have the flexibility to provide for a CP issue. 17. This will be subjected to prudential norms as applicable and subject to specific approval of the Board. it would not be obligatory in any manner on the part of banks and FIs to provide stand-by facility to the issuers of CP. Whether Stand by facility is required to be provided by the bankers/FIs for CP issue? CP being a `stand alone’ product. 18. based on their commercial judgement and as per terms prescribed by them. However.. the issuer fulfils the eligibility criteria prescribed for issuance of CP. Whether non-bank entities/corporates can provide guarantee for credit enhancement of the CP issue. the guarantor has a credit rating at least one notch higher than the issuer by an approved ` 37 . credit enhancement by way of stand-by assistance/credit backstop facility. Non-bank entities including corporates can provide unconditional and irrevocable guarantee for credit enhancement for CP issue provided : a. 16. What is the mode of redemption? Initially the investor in CP is required to pay only the discounted value of the CP by means of a crossed account payee cheque to the account of the issuer through IPA. (a) When the CP is held in physical form.
20.. The issuer should disclose to the potential investors its financial position as per the standard market practice. the names of the companies to which the guarantor has issued similar guarantees. After the exchange of deal confirmation between the investor and the issuer. the offer document for CP properly discloses: the networth of the guarantor company. c. b. Investors shall be given a copy of IPA certificate to the effect that the issuer has a valid agreement with the IPA and documents are in order (Schedule III). Role and responsibilities of the Issuer/Issuing and Paying Agent and Credit Rating Agency Issuer: a. It should also certify that it has a valid agreement ` 38 .COMMERCIAL PAPER credit rating agency and c. signatures of authorized executants (when CP in physical form) and issue a certificate that documents are in order. b. IPA would ensure that issuer has the minimum credit rating as stipulated by the RBI and amount mobilised through issuance of CP is within the quantum indicated by CRA for the specified rating. Every issuer must appoint an IPA for issuance of CP. and the conditions under which the guarantee will be invoked. the extent of the guarantees offered by the guarantor company. issuing company shall issue physical certificates to the investor or arrange for crediting the CP to the investor's account with a depository. Issuing and Paying Agent a. copy of board resolution. IPA has to verify all the documents submitted by the issuer viz.
Accordingly. While the CRAs can decide the validity period of credit rating. Industrial and Export Credit Department (IECD). Source : . clearly indicate the date when the rating is due for review.(http://www.scribd. b. Every CP issue should be reported to the Chief General Manager.COMMERCIAL PAPER with the issuer (Schedule III). Certified copies of original documents verified by the IPA should be held in the custody of IPA. c. Code of Conduct prescribed by the SEBI for CRAs for undertaking rating of capital market instruments shall be applicable to them (CRAs) for rating CP. as a selfregulatory organization (SRO) for the fixed income money market securities. Further. CRAs would have to closely monitor the rating assigned to issuers vis-a-vis their track record at regular intervals and would be required to make its revision in the ratings public through its publications and website 21. any standardized procedure and documentation for operational flexibility and smooth functioning of CP market. Is there any other formalities and reporting requirement with regard to CP issue? Fixed Income Money Market and Derivatives Association of India (FIMMDA). Central Office. in consultation with the RBI. CRA shall at the time of rating.com/) ` 39 . c. Reserve Bank of India. incorporating details as per Schedule II. Mumbai through the Issuing and Paying Agent (IPA) within three days from the date of completion of the issue. Credit Rating Agency a. the credit rating agency have the discretion to determine the validity period of the rating depending upon its perception about the strength of the issuer. may prescribe.
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