CALD Presentation:

By Group D: Shiv Dayal Srivastava Shashank Gupta Jain Ankit Shyam Sonali Priyadarshini Akansha Singh

Commercial Paper preferred Over short term Bank Loans.

Commercial Paper:
Commercial Paper (CP) is an unsecured money market instrument issued in the form of a promissory note. History: 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. Primary dealers and all-India financial institutions were also permitted to issue CP to enable them to meet their short-term funding requirements for their operations.

Who can issue Commercial Paper (CP): Corporate, primary dealers (PDs) and satellite dealers (SDs), and the allIndia 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.
A corporate 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 Rs. 4 crore. (b) Company has been sanctioned working capital limit by bank/s or allIndia financial institution/s. (c) The borrowed account of the company is classified as a Standard Asset by the financing bank/s/ institution/s. Denominations: 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).

Rating Requirement All eligible participants shall obtain the credit rating for issuance of Commercial Paper from: Credit Rating Information Services of India Ltd. (CRISIL) Investment Information and Credit Rating Agency of India Ltd. (ICRA) Credit Analysis and Research Ltd. (CARE) FITCH Ratings India Pvt. Ltd. Other credit rating agency (CRA) as may be specified by the Reserve Bank of India from time to time, for the purpose. The minimum credit rating shall be P-2 of CRISIL or such equivalent rating by other agencies.

Maturity CP can be issued for maturities between a minimum of 15 days and a maximum up to one year from the date of issue.

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, whichever is lower.

Issuing and Paying Agent (IPA)

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

Who can invest in CP?

Individuals, banking companies, other corporate bodies (registered or incorporated in India) and unincorporated bodies, Non-Resident Indians (NRIs) and Foreign Institutional Investors (FIIs) etc. can invest in CPs. However, investment by FIIs would be within the limits set for them by Securities and Exchange Board of India (SEBI) from time-to-time.

About The Article

For corporates the Commercial paper market is now preferred over bank loans for short term fund. To raise fund through a three month CP it costs around 10.25% where as for similar duration the base rate for most of the public sector bank is 10.75% The CP market is seeing more activity then bank loans because of the increase in base rate to 10.25% i.e. 125 basis point increase since 2011-12 first half. Top rated Oil-Companies are able to raise fund in CP market at 8.75 to 9% which are way below than banks base rate. Banks are also looking to shed their short term Loan as most of them are low Yielding Corporation bank reduced short term loan from 23 to 14 %, Similarly Allahabad bank reduced its short term loan portfolio by almost 50 %. Investors in CP are mainly Banks as its short term investments.

CORPORATE DEBT RESTRUCTURING

About the Article

Loans amounting to Rs. 1 lakh crore expected to be restructured. Effected industries. Reasons behind restructuring Increase in the amount of debt referred to the CDR forum. Ratings downgraded by Fitch and Care.

CDR
Definition Objectives by RBI Proposals under CDR CDR structure Pros and Cons of Debt Restructuring