Meaning and features of commercial paper

1. Commercial Paper
Dr. N. Nandini
Assistant Professor
Department of Commerce
Ethiraj College forWomen

2. What is a commercial paper?
A commercial paper is an unsecured short-term
promissory note issued at a discount by creditworthy
corporates, primary dealers and all-India financial
institutions

3. When introduced?
• Working Group on Money Market in 1987 suggested the introduction of
commercial paper (CP)
• Reserve Bank introduced CP in Jan 1990
• It is an instrument in vogue in the US since the 19th century
• Became popular in money markets all over the world since the 1980's

4. Features
• Unsecured instrument
• Like a promissory note
• Privately placed instrument
• Issued as a stand-alone product
• Will be issued at discount to face value
• Can be issued for a period not less than 7 days but not more than 1 year

5. Features
• Minimum denomination/marketable lot Rs. 5 lakhs or multiples thereof
• They can be redeemed only on a business day
• They cannot be underwritten or co-accepted
• Options are not permitted on CP
• They should be held in dematerialized form through any depository
authorized and approved by SEBI
• They are issued through private placements
• They need to be redeemed or should not have a maturity period not more
than the period for which credit rating has been given to the issuer

6. Further guidelines on the issue of commercial
paper
• Issuing and PayingAgent has to be appointed
by the issuer (IPA)
• The purpose of borrowing should be clearly
mentioned in the offer letter
• If the issuer is planning to list the security, the
same needs to be mentioned in the offer letter
and the issuer will take up the responsibility for
the same
• A company is permitted to issueCP if it has a
tangible networth of Rs. 4 crores, has
sanctioned working capital limit by banks or FI,
and the assets are classified as standard assets
• NBFC's, AIFI's are also permitted to issue
• Other entities like co-operative banks, trusts,
govt. Entities, LLP, any other body corporate
having presence in India (net worth to be more
than 100 crores)
• Any other entity as permitted by RBI

7. Who can invest?
• Resident Indian
• NRI's as per regulations under FEMA
• Other financial sector entities as per guidelines laid down by the regulator
• Investors cannot invest in CP if they are related to the issuing party

8. CP Securities Account DetailsDP Name : HDFC Bank Ltd.Dp Id : IN 300126Client Name : HDFC Bank Ltd - CP Redemption A/cClient Id : 11180008 We hereby
confirm that PIRAMAL ENTERPRISES LIMITED, the Issuers have appointed us as the Issuing and Paying Agent (IPA) for the CP under reference.
Issuing and Paying Agent (IPA means a financial institution that acts on behalf of the issuer to facilitate CP issuance and effect principal and interest payments
at maturity to CP holders;
https://www.lawinsider.com/dictionary/issuing-and-paying-agent-
ipa#:~:text=Examples%20of%20Issuing%20and%20Paying%20Agent%20(IPA%20in%20a%20sentence&text=Dp%20Id%20%3A%20IN%20300126Client%20Name,for%20th
e%20CP%20under%20reference.
https://nsdl.co.in/downloadables/excel/cp-debt/Commercial_Papers_Issuance_in_the_month_of_Nov_2023.html