COMMERCIAL PAPER

CONTENTS:
. INTRODUCTION . WHAT IS COMMERCIAL PAPER . ISSUE OF COMMERCIAL PAPER . COMMERCIAL PAPER ISSUE MECHANISM . ADVANTAGES OF COMMERCIAL PAPER . DISADVANTAGES OF COMMERCIAL PAPER

INTRODUCTION

IT IS A FORM OF PROMISSORY NOTES ISSUED BY CORPORATIONS , TO MEET THE SHORT -TERM FUNDING REQUIREMENT.

WHAT IS COMMERCIAL PAPER

IT IS AN UNSECURED MONEY MARKET INSTRUMENT ISSUED IN THE FORM OF A PROMISSORY NOTE. IT IS MAINLY USED TO FUND CURRENT ASSETS.

ISSUE OF COMMERCIAL PAPER

1. CORPORATE,PRIMARY DEALERS AND THE ALLINDIA FINANCIAL INSTITUTIONS ARE ELIGILBLE TO ISSUE COMMERCIAL PAPER. 2. ALL CORPORATES WOULD AUTOMATICALLY BE ELIGIBLE TO ISSUE COMMERCIAL PAPER. 3. ALL ELIGIBLE PARTICIPANTS SHALL OBTAIN THE CREDIT RATING FOR ISSUANCE OFCOMMERCIAL PAPER FROM ANY OF THE DIFFERENT CREDIT RATING AGENCY AS SPECIFIED BY RESERVE BANK FROM TIME TO TIME.

4. MINIMUM CREDIT RATING SHALL BE P-2 OF CRISIL OR SUCH EQUIVALENT RATING BY OTHER AGENCIES. 5. ISSUER SHALL ENSURE THE TIME OF ISSUANCE OF RATING IS CURRENT AND THE MATURITY DATE SHOULD NOT GO BEYOND THE DATE TO WHICH CREDIT RATING OF ISSUER IS VALID. 6. IT CAN BE ISSUED FOR MATURITIES BETWEEN MINIMUM OF 15 DAYS AND MAXIMUM UPTO ONE YEAR FROM DATE OF ISSUE.

7. THE AGGREGRATE AMOUNT SHOULD BE WITHIN LIMITS APPROVED BY BOARD OF DIRECTORS OR BY CREDIT RATING AGENCY WHICHEVER IS LOWER. 8. IT CAN BE ISSUED IN DENOMINATIONS OF RS.5 LAKH OR ITS MULTIPLE. 9. IT CAN BE ISSUED ON A SINGLE DATE OR IN PARTS OF DIFFERENT DATES. 10. ONLY A SCHEDULED BANK CAN ACT AS AN ISSUING AND PAYING AGENT FOR ISSUANCE.

COMMERCIAL PAPER MECHANISM

ADVANTAGES
HIGH CREDIT RATING FETCH A LOWER COST OF CAPITAL. WIDE RANGE OF MATURITY PROVIDE MORE FLEXIBILITY. IT DOES NOT CREATE ANY LIEN ON ASSET OF THE COMPANY. TRADABILITY PROVIDES INVESTORS WITH EXIT OPTIONS.

DISADVANTAGES
USAGE IS LIMITED TO ONLY BLUE PRINT COMPANIES. ISSUANCE BRING DOWN THE BANK CREDIT LIMITS. A HIGH DEGREE OF CONTROL IS EXERCISED ON ITS ISSUE. STAND BY CREDIT MAY BECOME NECESSARY.