Commercial Paper (CP) is an unsecured money market instrument issued in the

form of a promissory note. CP as a privately placed instrument, 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.
Subsequently, primary dealers and satellite dealers were also permitted to issue CP to
enable them to meet their short-term funding requirements for their operations.
Guidelines for issue of CP are presently governed by various directives issued by the
Reserve Bank of India, as amended from time to time. In pursuance of the Statement on
Monetary and Credit Policy for the Year 2000 - 2001, to keep pace with several
developments in the financial market, it has been decided to modify the guidelines in the
light of recommendations made by an Internal Group. Now, the Reserve Bank in
exercise of the powers conferred by Sections 45 J, 45 K and 45 L of the Reserve Bank of
India Act, 1934 (2 of 1934) issues the following guidelines replacing all earlier
directions/guidelines on the subject :
Who can issue Commercial Paper (CP)
2. Corporates, primary dealers (PDs) and satellite dealers (SDs), 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.
3. 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 all-India financial
institution/s; and (c) the borrowal 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 Commercial
Paper from either the Credit Rating Information Services of India Ltd. (CRISIL) or the
Investment Information and Credit Rating Agency of India Ltd. (ICRA) or the Credit
Analysis and Research Ltd. (CARE) or the FITCH Ratings India Pvt. Ltd. or such 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. 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.
Maturity
5. CP can be issued for maturities between a minimum of 15 days and a maximum
upto one year from the date of issue.
Denominations
6. 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).
Limits and the Amount of Issue of CP
7. CP can be issued as a "stand alone" product. The aggregate amount of CP from
an issuer shall be within the limit as approved by its Board of Directors. Banks and FIs
will, however, have the flexibility to fix working capital limits duly taking into account
the resource pattern of companies’ financing including CPs.
8. An FI can issue CP within the overall umbrella limit fixed by the RBI i.e., issue of CP
together with other instruments viz., term money borrowings, term deposits, certificates
of deposit and inter-corporate deposits should not exceed 100 per cent of its net owned
funds, as per the latest audited balance sheet.
9. 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. CP may be
issued on a single date or in parts on different dates provided that in the latter case, each
CP shall have the same maturity date.
Every CP issue should be reported to the Chief General Manager, Industrial and Export
Credit Department (IECD), Reserve Bank of India, Central Office, Mumbai through the
Issuing and Paying Agent (IPA) within three days from the date of completion of the
issue, incorporating details as per Schedule II.
10. Every issue of CP, including renewal, should be treated as a fresh issue.
Who can act as Issuing and Paying Agent (IPA)
11. Only a scheduled bank can act as an IPA for issuance of CP.
Investment in CP
12. CP may be issued to and held by individuals, banking companies, other
corporate bodies registered or incorporated in India and unincorporated bodies, Non-
Resident Indians (NRIs) and Foreign Institutional Investors (FIIs). However,
investment by FIIs would be within the limits set for their investments by Securities and
Exchange Board of India (SEBI).
Mode of Issuance
13. 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. As regards the existing stock of CP, the same can continue to be held either in
physical form or can be demateralised, if both the issuer and the investor agree for the
same.
14. CP will be issued at a discount to face value as may be determined by the issuer.
15. No issuer shall have the issue of Commercial Paper underwritten or coaccepted.
Preference for Dematerialised form
16. While option is available to both issuers and subscribers, to issue/hold CP in
dematerialised or physical form, issuers and subscribers are encouraged to prefer
exclusive reliance on dematerialised form of issue/holding. Banks, Financial
Institutions, PDs and SDs are advised to invest and hold CPs only in dematerialised
form, as soon as arrangements for such dematerialisation are put in place.
Payment of CP
17. 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. On maturity of
CP, when the CP is held in physical form, the holder of the CP shall present the
instrument for payment to the issuer through the IPA. However, when the CP is held in
demat form, the holder of the CP will have to get it redeemed through the depository and
receive payment from the IPA.
Stand-by Facility
18. In view of CP being a `stand alone’ product, 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.
Banks and FIs would, however, have the flexibility to provide for a CP issue, credit
enhancement by way of stand-by assistance/credit backstop facility, etc., based on their
commercial judgement and as per terms prescribed by them. However, these should be
within the prudential norms as applicable and subject to specific approval of the Board.
Procedure for Issuance
19. Every issuer must appoint an IPA for issuance of CP. The issuer should disclose
to the potential investors its financial position as per the standard market practice. After
the exchange of deal confirmation between the investor and the issuer, issuing company
shall issue physical certificates to the investor or arrange for crediting
the CP to the investor's account with a depository. 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
20. The role and responsibilities of issuer, IPA and CRA are set out below :
(a) Issuer
With the simplification in the procedures for CP issuance, issuers would now
have more flexibility. Issuers would, however, have to ensure that the guidelines and
procedures laid down for CP issuance are strictly adhered to.
(b) Issuing and Paying Agent (IPA)
(i) 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.
(ii) IPA has to verify all the documents submitted by the issuer viz., copy of board
resolution, signatures of authorised executants (when CP in physical form) and issue a
certificate that documents are in order. It should also certify that it has a valid
agreement with the issuer (Schedule III).
(iii) Original documents verified by the IPA should be held in the custody of
IPA.
(c) 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.
(ii) Further, the credit rating agency would henceforth have the discretion to
determine the validity period of the rating depending upon its perception about the
strength of the issuer. Accordingly, CRA shall at the time of rating, clearly indicate the
date when the rating is due for review.
(iii) While the CRAs can decide the validity period of credit rating, 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. Fixed Income Money Market and Derivatives Association of India (FIMMDA),
as a self-regulatory organisation (SRO) for the fixed income money market securities,
may prescribe, for operational flexibility and smooth functioning of CP market, any
standardised procedure and documentation that are to be followed by the participants, in
consonance with the international best practices. Till such time, the
procedures/documentations prescribed by IBA should be followed.
22. Violation of these guidelines will attract penalties prescribed in the Act by the
RBI and may also include debarring from the CP market.
Non-applicability of Certain Other Directions
23. Nothing contained in the Non-Banking Financial Companies Acceptance of
Public Deposits (Reserve Bank) Directions, 1998 shall apply to any non-banking
financial company (NBFC) insofar as it relates to acceptance of deposit by issuance of
CP, in accordance with these Guidelines.
24. Definitions of certain terms used in the Guidelines are provided in the Annexure.
Reserve Bank of India,
Industrial and Export Credit Department,
Mumbai - 400 001.
October 10, 2000.