Commercial paper is a short-term unsecured promissory note issued by well-known financially strong companies to raise funds for periods between 7 days to 1 year. It was introduced in India in 1990 to provide corporate borrowers and financial institutions an additional source of short-term funding. There are two types - direct paper issued directly to investors and dealer paper issued through security dealers. Guidelines specify eligibility, rating requirements, minimum denomination, and end use of funds. Commercial paper provides lower cost funding than bank loans but is only available to select highly rated companies for working capital and other short-term needs.

1. Commercial Papers
Presented By: Vivian Carvalho
Tharun Nair
Harshita Joshi
Sejal Nair
Lavish Singhai

2. Index
• What is 'Commercial Paper’
• Why it was introduced?
• Types of CP
• Structure of the CP Market
• Guidelines for issuance of a CP
• A Comparative position of CP
• Example (CERA)
• Conclusion

3. What is 'Commercial Paper’
• Commercial paper consists of short-term,
unsecured promissory notes issued by well-
known and financially strong companies.
• Commercial paper is traded mainly in the
primary market. Opportunities for resale in
the secondary market are more limited.
• Commercial paper is rated prime, desirable, or
satisfactory, depending on the credit standing
of the issuing company.

4. • CP can be issued for maturities between a minimum of 7
days and a maximum of up to one year from the date of
issue.
• Commercial paper is usually sold at a discount from face
value, and carries higher interest repayment rates than
bonds.

5. Question arises in mind, why it was
introduced?
• It was introduced in India in 1990 with a view
to enabling highly rated corporate borrowers
to diversify their sources of short-term
borrowings and to provide an additional
instrument to investors. Subsequently,
primary dealers and all-India financial
institutions were also permitted to issue CP to
enable them to meet their short-term funding
requirements for their operations.

6. Types of Commercial Paper
• There are two major types of commercial
paper.
• Direct paper is issued mainly by large finance
companies and bank holding companies
directly to the investor.
• Dealer paper, or industrial paper, is issued by
security dealers on behalf of their corporate
customers (mainly nonfinancial companies
and smaller financial companies).

7. Structure of the Commercial Paper Market
Investors in commercial
paper
Money market funds
Banks
Insurance companies
Pension funds
Industrial companies
Other investors
Demand SideSupply Side
Issuers of commercial
paper
Finance companies
Bank holding companies
Nonfinancial firms
Direct or finance paper
Paper
dealer
housesDealer or
industrial
paper

8. Commercial Paper
Advantages
 Commercial paper represents one way for large firms
to borrow money for the short term.
 companies issue the commercial paper for less than
its face value and buy back the paper at its face
value.
 Commercial paper are cheaper than a bank loan.

9. Commercial Paper
Disadvantages
 It is available only to a few selected blue chip and
profitable companies.
 By issuing commercial paper, the credit available
from the banks may get reduced.
Issue of commercial paper is very closely
regulated by the RBI guidelines.

10. Guidelines for issuance of a CP
•Eligibility
•Rating Requirement
•Maturity
•Denomination
•Issuing and Payment agent
•Investment in a CP
•Mode of issuance
•Preference for DEMAT

11. COMMERCIAL PAPER ISSUE EXPENSES
Stamp duty
0.2% - If placed through banks
1.0% - If placed through
merchant bankers
Rating fees*
0.10% (subject to a minimum of
Rs.100,000)
(for a rating from CARE)
Issuing and paying agent fee 0.1%
(All charges are on per annum basis and are subject to changes
from time to time)

12. COMMERCIAL PAPER :
A COMPARITIVE POSITION

13. COUNTRIES USA UNITED
KINGDOM
FRANCE INDIA
LEGAL BASIS SECURITIES ACT ENGLISH COMMON
LAW
1 FRENCH
FINANCIAL &
MONETARY CODE
2 DECREE & CRBF
REGULATION
1 NON BANKING
( ACCEPTANCE OF
DEPOSIT THROUGH
CP DIRECTION 1989)
2 SEC 45K OF RBI
ACT 1934
MATURITY
PERIOD
NO MINIMUM &
MAXIMUM
RANGES FROM 1
DAY TO 270 DAYS
LESS THAN 365
DAYS
BETWEEN ONE
DAY AND UP TO 1
YEAR
7 DAYS AND UPTO
1 YEAR
DENOMINAT
ION
NO REQUIRED
MINIMUM
DENOMINATION
BUT MARKET
PRACTICE OF $
100000
EUR 40000 A UNIT VALUE
EQUIVALENT AT
LEAST EUR
150000
DENOMINATION
OF 500000 OR
MULTIPLES
AMOUNT
INVESTED BY A
SINGLE
INVESTOR NOT
BE < 500000(FV)

15. Example 1 – CERA SANITARY
• ISSUE DATE – 30/12/2016
• MATURITY DATE – 30/03/2017
• RATING – CRISIL A1+
• AMOUNT RAISED – 30 Cr.
• PURPOSE – WORKING CAPITAL REQUIREMENT OF
THE COMPANY.

16. EXAMPLE 2 –ENTERTAINMENT
NETWORK (INDIA) LTD.
• ISSUE DATE – March 18, 2016
• ISSUED TO – BNP PARIBAS
• MATURITY DATE – March 17, 2017
• RATING – CRISIL A1+
• AMOUNT RAISED – Rs. 249.43 crores
• MATURITY VALUE - Rs. 270 crores
• PURPOSE – PROCEEDS FROM THE CP’S WILL BE USED TO FULLY
REPAY THE OUTSTANDING BANK LOANS.
• EFFECTIVE YIELD – 8.25%

17. New RBI Guidelines regarding
Commercial Papers
1. The Reserve Bank today relaxed commercial paper (CP) issuances by
lowering the minimum required credit rating to A3 from A2.
2. CP shall be issued in minimum denomination of Rs 5 lakh and multiples of
Rs 1 lakh
3. Eligible issuers shall obtain credit rating for issuance of CP from at least
two Sebi-registered rating agencies, and should adopt the lower of the two
ratings.
4.The apex bank further said the issuer has to ensure that the proceeds
should be used to finance only current assets and operating expenses. The
end use must be explicitly disclosed in the offer document.

18. CONCLUSION
• BIBILIOGRAPHY –
• BOMBAY STOCK EXCHANGE
• MONEYCONTROL
• ECONOMICTIMES
• INVESTOPEDIA
• RESERVE BANK OF INDIA

19. THANK YOU