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Presentation ON Commercial Papers

Commercial paper is a short term unsecured debt instrument issued by corporations with high credit ratings to finance short term needs. It has a maturity between 2 to 270 days. The Reserve Bank of India first referenced commercial paper in 1989 and issued guidelines allowing eligible corporate borrowers to issue CP as a source of short term funding. To be eligible, a company must have a tangible net worth of at least 4 crore rupees and be classified as a standard asset by its banks. Companies issue CP to diversify funding sources and provide another investment option for investors.

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Shweta Nagpal
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36 views

Presentation ON Commercial Papers

Commercial paper is a short term unsecured debt instrument issued by corporations with high credit ratings to finance short term needs. It has a maturity between 2 to 270 days. The Reserve Bank of India first referenced commercial paper in 1989 and issued guidelines allowing eligible corporate borrowers to issue CP as a source of short term funding. To be eligible, a company must have a tangible net worth of at least 4 crore rupees and be classified as a standard asset by its banks. Companies issue CP to diversify funding sources and provide another investment option for investors.

Uploaded by

Shweta Nagpal
Copyright
© Attribution Non-Commercial (BY-NC)
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as PPT, PDF, TXT or read online on Scribd
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PRESENTATION

ON
COMMERCIAL PAPERS
DEFINITION

“It is a short term unsecured debt instrument issued by the


corporations with high credit rating to finance its short term
needs. CP is available in variety of denominations and
usually ranges in maturity from 2 to 270 days.”
INTRODUCTION
 RBI had, with the view to enabling highly rated
corporate borrowers to diversify their sources of
short term borrowing and providing an additional
instrument to investors, made for the first time a
reference to the CP in march 1989 and
accordingly issued detailed guidelines under “non-
banking companies directions,1989” through a
notification dated 11th December 1989 and these
directions were made effective from 1st January
1990.
 Support in the form of line of credit (LOC paper)
to sub-par credit quality.
 Asset backed commercial papers
ELIGIBILITY CRITERIA FOR
ISSUING COMMERCIAL PAPER
A corporate would be eligible to issue CP provided:

 The tangible net worth of the company as per the latest


balance sheet , is not less than Rupees 4 crore.

 Company has been sanctioned working capital unit by


banks or All-India financial institutions

 The borrowal account of the company is classified as


standard asset by the financing banks/ institutions
WHY ISSUE COMMERCIAL PAPER?
GUIDELINES
 Who can issue- Corporate, privacy dealers (PDs) and the
financial institutions are eligible to issue.
 Rating requirement- Obtain the credit rating from agencies.
The minimum credit rating shall be p-2 of or such equivalent
rating by other agencies.
 Maturity- it can be issued for maturity between a minimum
of 7 days and maximum of 1 year from the date of issue.
 Denominations- It can be issued in denominations of rupees
5 lakh or multiples thereof.
 Limit and amount of issue- The aggregate amount of CP
from an issuer shall be within the limits as approved by board
of directors or the quantum indicated by credit rating agency
for the specified rating whichever is lower.
 Who can act as issuing and paying agent (IPA)- only
scheduled banks.
CONT….
Cont…
 Mode of issuance-CP can be issued either in the form of
promissory notes or in dematerialized form through any
of the depositories approved by and registered by SEBI.
 CP issue expenses- CP is issued at a discount to the
face value. Following cost are involved in the issue of
CP:-

Stamp duty 0.2%- if placed through


bank
1.0%iif placed through
merchant banker

Rating fees 0.10% (subject to


minimum of rupees
100,000)

Issuing and paying 0.1%


agent fees
Cont…
 Payment of CP
 Procedure of issuance
ROLE AND
RESPONSIBILITIES
 ISSUER

 ISSUING AND PAYING AGENT

 CREDIT RATING AGENCIES


COMMERCIAL PAPER
YIELDS
 CP is typically a discount instrument, like a zero
coupon bond and sold at a deep discount to par or its
maturity value.
 The yield are typically higher than treasury equivalent

 They are credit risk associated

 They are taxable at the state level

 They are not as liquid of as an investment as


treasuries
 Issue of the CP does not have the relation with the
asset of the company
QUERY?
THANK YOU

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