Commercial Paper (CP) is an unsecured money market instrument issued in the form of a promissory note. 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 satellite dealers were also permitted to issue CP to enable them to meet their short-term funding requirements for their operations.
- They are unsecured debts of corporates and are issued in the form of promissory notes, redeemable at par to the holder at maturity.
- Only corporates who get an investment grade rating can issue CPs, as per RBI rules.
- It is issued at a discount to face value
- Attracts issuance stamp duty in primary issue
- Has to be mandatorily rated by one of the credit rating agencies
- It is issued as per RBI guidelines
- Its held in Demat form
- CP can be issued in denominations of Rs. 5 lakh or multiples thereof. Amount invested by a single investor should not be less than Rs. 5 lakh (face value).
- Issued at discount to face value as may be determined by the issuer.
- Bank and FI’s are prohibited from issuance and underwriting of CP’s.
- Can be issued for a maturity for a minimum of 15 days and a maximum upto one year from the date of issue.
Issuer: Can be issued by corporates, Primary Dealers and the all-India financial institutions (FIs) that have been permitted to raise short-term resources under the umbrella limit fixed by the Reserve Bank of India are eligible to issue CP.
All eligible participants shall obtain the credit rating for issuance of Commercial Paper either from CRISIL or ICRA or CARE or the FITCH Ratings India Pvt. Ltd. or such other credit rating agency (CRA) as may be specified by the Reserve Bank of India from time to time, for the purpose.
The minimum credit rating shall be P-2 of CRISIL or such equivalent rating by other agencies.
The issuers shall ensure at the time of issuance of CP that the rating so obtained is current and has not fallen due for review and the maturity date of the CP should not go beyond the date up to which the credit rating of the issuer is valid.
Investment in CP: CP may be issued to and held by individuals, banking companies, other corporate bodies registered or incorporated in India and unincorporated bodies, Non-Resident Indians (NRIs) and Foreign Institutional Investors (FIIs). However, investment by FIIs would be within the limits set for their investments by Securities and Exchange Board of India (SEBI).
SBI DFHI is actively involved in trading and investing in investment grade Commercial Paper. Investors can participate through SBI DFHI Invest Plus scheme (details available on website)