Questions on Commercial Papers

1. What is Commercial Paper?

Commercial Paper is an unsecured money market issued in the form of Promissory note

2. When Commercial Paper was introduced?

It was introduced in India in 1990

3. Why Commercial Paper was introduced?

It was introduced in 1990 with a view to enabling highly rated corporate borrower to diversify their source of short-term borrowing and to provide an additional instrument to investment to investors. Subsequently, primary dealers and all Indian financial institutions were also permitted to issue CP to enable them to meet their short term funding requirements for their operations

4. Who can issue CP?

Corporate, primary dealers and all Indian Financial Institutions are eligible to issue Commercial Paper

5. Whether all the corporate would automatically be eligible to issue CP?

No. A corporate would be eligible to issue Commercial Paper provided, the tangible net worth of the company,

> As per the latest audited balance sheet, is not less than four crores

> Company has been sanctioned working capital limit by bank or all Indian financial institutions and

> The borrowable account of the company is classified as a standard asset by the financing bank institution

6. Is there any rating requirement for issuance of Commercial Paper? And if so, what is the rating requirement?

Yes. All eligible participants shall the credit rating for issuance of Commercial Paper either from 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 Rating 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

7. What is the minimum and maximum period of maturity prescribed for CP?

CP can be issued for maturities between a minimum of 7 days and maximum of upto 1 year from the date of issue. However maturity date of the CP should not go beyond the date up to which the credit rating of the issuer is valid

8. In what denominations a CP that can be issued?

CP can be issued in denominations of 5,00,000 rupees or multiples thereof

9. How long can the CP issue remain open?

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

10. Whether CP can be issued on different dates by the same issuer?

Yes. 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. Further, every issue of CP, including renewal, shall be treated as a fresh issue.

11. Who can act as issuing and paying Agent(IPA)?

Only a scheduled bank can act as an issuing and paying Agent

12. What is the mode of redemption?

Initially the investor in CP is required to pay only the discounted value of the CP by means of a crossed account payee cheque to the account of the issuer through issuing and paying Agent. 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 issuing and paying Agent.

> 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.