COMMERCIAL PAPER MARKET

Presented By: ASHITH M RODRIGUES

Presentation on

Contents
Meaning Commercial Paper in India Guidelines for issue of CP Invest in CP Advantages & Disadvantages Eligibility Conditions

MEANING

Commercial paper is an unsecured money market instrument issued in the form of a promissory note,with a fixed maturity by a company approved by RBI.

FEATURES
It is a certificate evidencing an unsecured debt of short term maturity. Usually sold at a discount from face value. Carries Higher interest repayment rates than Bonds. The longer the maturity on a note ,the higher the interest rate the issuing institution must pay. Interest rates fluctuate with market conditions, but are lower than Bank rates.

CP IN INDIA
Introduced in India in 1990 to enable high rated corporate borrowers to raise short term Funds. Later on other players like All India Financial Institutions and Primary Dealers too were allowed to issue CP for meeting their short term funding requirements. In India it is expected that CP will be used only for short term financing and as an alternative source of finance to bank credit and other short term finances.

RBI GUIDELINES FOR ISSUE OF CP

In India the issue of CP is being regulated by RBI. The tangible net worth of the company ,as per the latest audited balance sheet ,is not less than Rs.4 crore. CP can be issued for maturities between 7 days and up to 1 year from the date of issue. CP can be issued in denomination of Rs.5 lakh or multiples thereof. Amount invested by single investor should not be less than Rs.5Lakh. The total amount of CP proposed to be issued should be raised within a period of 2 weeks from the date on which the issuer opens the issue for subscription.

Invest in CP
1) Individuals 2) Banking Companies 3) Other corporate bodies & unincorporated bodies 4) Non-Resident Indians 5) Foreign Institutional Investors

ADVANTAGES & DISADVANTAGES

ADVANTAGES High returns Simplicity Flexibility

DISADVANTAGES It is an impersonal method of Financing Its usage is limited only to Blue chip companies. Issuances of CP bring down the bank credit limits. Stand-by credit may become necessary. It cannot be redeemed until maturity.

Eligibility Conditions
Following can issue: 1. Corporates 2. Primary Dealers 3. All India Financial Institutions. A Corporate is allowed 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 banks. c) The borrower account of the company is classified as standard Asset by Financing Banks.