Commercial Paper (CP) is an unsecured, short-term debt instrument issued in the form of a promissory note. The corporates, primary dealers (PDs), Banks and financial institutions that have been permitted by RBI are eligible to issue Commercial Papers to raise short-term resources. Resident Indians, Non-Resident Indians (NRIs), banking companies, corporates, and Foreign Institutional Investors (FIIs) etc. are eligible to invest in CPs. However, investment by FIIs would be within the limits set for them by Securities and Exchange Board of India (SEBI) from time-to-time.
The CP can be issued for maturities between a minimum of 7 days and a maximum up to one year from the date of issue, under the umbrella limit fixed by RBI. The maturity date of CP issued shall be within the date up to which credit rating issued by any one of the following rating agencies is valid. Presently, CRISIL, ICRA, CARE, and the FITCH are authorised to issue rating certificates. The minimum credit rating shall be A-2 rating symbol prescribed by SEBI.
Limit up to which a CP can be issued
The financial institutions can issue CP within the Resource Raising Norms for FIs, issued by RBI from time-to-time. Corporates are permitted to issue CP subject to their tangible net worth is less than Rs.4 Crores as per latest audited balance sheet. Further, the company must enjoy working capital facility from Banks or from an all India financial institution and their account should be classified as the standard asset by the bank/FI.
The CP should be raised within two weeks from the date on which issue for subscription is opened. It will be issued at a discount to face value of minimum Rs.5 lakh or multiple thereof. The face value of the CP to be issued is decided by the issuer. Scheduled banks can only act as Issuing and Paying Agent (IPA) for the issuance of CP. Every CP issue should be reported to RBI, Financial Market Department, Central Office, Mumbai.