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Commercial Paper in India – Issues, Investors and Features

Commercial Paper in India – Issues, Investors and Features for IBPS PO, IBPS CLERK, INSURANCE EXAMS, RRB OFFICER SCALE 1, RRB ASSISTANT, SBI PO, SBI CLERK


Essential for All Upcoming Bank Exams
Commercial paper (CP) introduced in the 1990's, issued as a note of commitment to an unsecured use of a short-term money market instrument and is placed personally.

The objective is to enable highly rated corporate borrowers and Primary Dealers to diversify their sources of short-term borrowings. 

Who can issue Commercial Paper (CP)? 
All India Financial Institutions (FIs), Companies, Primary Dealers (PDs) are issue the Commercial Paper. [For PDs or FIs no eligibility criteria except that their borrowing should be within their umbrella (overall) borrowing limit]. 

Eligibility Criteria for a Company: 
A company is eligible to issue CP if – 
  • Capital limited working through banks or all India financial institutions. 
  • The minimum credit rating from SEBI approved Credit Rating Agency (CRA) should not be for rating A3 rating. 
  • According to the latest audited balance sheets, its tech net is not less than Worth Rs. 4 crores and 
  • The creditors' accounts are classified as a standard assented by financing the banks or institutions. 
Minimum 7 days and maximum up to 1 year (which should not fall beyond the validity period of credit rating). 

Minimum Rs. 5 lakh or multiple thereof, Aggregate amount as approved by Board or indicated by CRA, whichever is lower. 

Time period ceiling: 
The issue should increase the total amount by 2 weeks from the date of opening. Each CP shall have the same maturity date even when issued on different dates. Each issue of renewable paper documents should be considered as a new issue. 

Individuals, banking companies, other corporate bodies registered or incorporate in India and unincorporated bodies, Non- Resident Indians and FIIs (for FIIs within the limits set for their investments by SEBI). 

Mode of Insurance: 
Through any of the depositories approved by and registered with Securities and Exchange Board of India (SEBI). On 1st July, 2001 PDs/FIs/Banks shall hold Cps in demat from only. 

Stand-by Facility: 
Banks and Financial Institutions have the flexibility to increase credit through a CP issue, standby assistant or credit back step facility, on the basis of their business decisions and according to the conditions set by them. 

  • Issuing and paying agents would report insurance of CP on BDS by the end of 2nd day. 
  • No issuer will be issued or accepted on commercial paper. 
  • OTC trades to be reported within 15 min at the Fixed Income Money Market and Derivatives Association of India (FIMMDA) platform. Over-the-counter (OTC) trade settlement period is T+0 or T+1. 
  • It is issued at a discounted price value. 
  • Issuer can buy back through secondary market after 7 days from date of issue. 
  • Call or put option is not available. 

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