PROCESS OF ISSUE OF COMMERCIAL PAPERSSection: C2DE Karan Vyas 2009159 Maheep Sangari 2009163 Prachir Gupta 2009185 Rajnikant bajaj 2009190 Rashmi prasad 2009192

Commercial Papersy Commercial paper, or CP is a short term unsecured

promissory note y Minimum denomination of Rs. 5 Lakhs and multiples of 5 Lakhs thereon y Maturity from 7 days to one year y Unsecured Money Market Instruments and backed by credit of the issuing company

History of CPs in IndiaIntroduced in India in 1990 with a view to enabling highly rated corporate borrowers to diversify their sources of shortterm borrowings and to provide an additional instrument to investors.

Benefits of CPs for Companiesy CP gives highly rated companies access to cheaper funds as

compared to the working capital finance from banks or other sources. y It minimises documentation requirements. y The maturity of CP can be suitably adjusted as per the cash flow requirements of the issuers.

CPs can be issued by1. 2. 3.

Corporates Primary Dealers (PDs) All India Financial Institutions(FIs)

Eligibility Criteria1. 2.

3. 4.

Minimum tangible net worth of Rs. 4 crore Should have been sanctioned working capital limits by banks/FIs and should be classified as a 'Standard Asset' by the financing bank(s) / FIs. Should have minimum credit rating from an agency approved by RBI (Such minimum rating from CRISIL, CARE is PR 2). Issue of CP together with other instruments viz., term money borrowings, term deposits, certificates of deposit and intercorporate deposits should not exceed 100 per cent of its net owned funds, as per the latest audited balance sheet.

Process of IssueResolution passed by the Board of Directors

File relevant documents, as per RBI norms

CP issue rated by an RBI approved credit rating agency

Select the Issuing and Paying Agent (usually a scheduled bank)

Issue has to be completed within 2 weeks of opening

Costs Involved for issuing CPStamp duty 2. Rating fees 3. Issuing and paying agent fee1.

Responsibilities of Issuing & Paying Agent (IPA)y Ensure that issuer has the minimum credit rating y Verify all the documents submitted by the issuer viz.1. 2.

Copy of board resolution Signatures of authorised executants

y Issue a certificate that documents are in order y For transparency and benchmarking, IPA should report CP

issues on NDS within two days from the completion of the issue.

Investors in Commercial PapersCP may be issued to and held by1. 2. 3. 4. 5.

Individuals Banking companies Other corporate bodies registered or incorporated in India Non-resident Indians (NRIs) Foreign Institutional Investors (FIIs)

Documents Required by InvestorsThe following are the documents required by the investors:1. 2. 3.

Original certificates stamped Copies of the Board Resolution and signatures of Authorised Signatory(ies) of the corporate. Rating letter from an approved credit rating agency

Factors Affecting the Interest Rate on CPy Quality of credit, as indicated by the credit rating y Liquidity in the money market y Call money rates y Outlook & yield from alternative investment

Current Issuesy No. of CP issuances have bloated in response to post the Base y y y y

Rate Regime RBI has expressed concern over the quality of credit in these papers Concern over proper due diligence RBI likely to come out with revised guidelines CP market could become organised in terms of regulation and reporting.

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