ISSUE OF COMMERCIAL PAPER
To give a boost to the money market and for reducing the dependence of
highly rated corporate borrowers on bank finance for meeting their working
capital requirements, corporate borrowers were permitted to arrange short term borrowings
by issue of Commercial Paper (CP) with effect from Ist January, 1990.
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.
Present guidelines issued by RBI vide IECD. 3/08.15.01/2000-2001
dt.10.10.2000 have replaced the earlier guidelines. These guidelines have been
amended by Notification Nos. IECD/2/08.15.01/2000-01 dt. 30.4.2001, IECD/
3/08.15.01/2001-02 dt.23.7.2001, IECD. 11/08.15.01/2002-03 dated
12.11.02, IECD. No. 19/08.15.01/2002-03 dated 30.4.2003 and IECD No.
08.15.01/2003-04 dated 19.8.2003.
The salient features of the scheme as per new guidelines are discussed
hereunder:
Who can issue
Commercial Paper (CP)
(i) Corporates;
primary dealers (PDs) and satellite dealers (SDs), and the all-India
financial institutions (FIs) that have been permitted to raise short-term
resources under the umbrella limit fixed by Reserve Bank of India are eligible
to issue CP.
Notes:(a) "corporate" or
"company" means a company as defined in Section 45 I (aa) of the Reserve Bank of India Act; 1934 but does not include a company which is being
wound up under any law for the time being in force.
(b) 'Primary
Dealer" means a financial institution which holds a valid letter of
authorisation as a Primary Dealer issued by the Reserve Bank, in terms of the
"Guidelines for Primary Dealers in Government Securities Market dated
March 29, 1995, as amended from time to time.
(c) "Satellite
Dealer" means a financial institution which holds a valid letter of
authorisation as a Satellite Dealer issued by the Reserve Bank, in terms of the
"Guidelines for Satellite Dealers in Government Securities Market dated
December 31, 1996, as amended from time to time.
(d) "All
India Financial Institutions (FIs)" means those financial Institutions
which have been permitted specifically by the Reserve Bank of India to raise
resources by way of Term Money, Term Deposits and Certificates of Deposit
within umbrella limit.
(ii) A corporate would be
eligible 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 bank/s or all India financial institution/s; and
c)
the borrowal account of the company is
classified as a Standard Asset by the financing bank/s/institution/s.
Notes:(a) "Tangible net worth" means
the paid-up capital plus free reserves (including balances in the share premium
account, capital and debentures redemption reserves and any other reserve not
being created for repayment of any future liability or for depreciation in
assets or for bad debts or reserve created by revaluation of assets) as per the
latest audited balance sheet of the company, as reduced by the amount of
accumulated balance of loss, balance of deferred revenue expenditure, as also
other intangible assets.
(b) "working
capital limit" means the aggregate limits, including those by way of
purchase/discount of bills sanctioned by one or more banks/F1s for meeting the
working capital requirements.
Credit Rating Requirement
All eligible participants shall obtain the credit rating for issuance of
Commercial Paper from either the Credit
Rating Information Services
of India Ltd. (CRISIL) or the Investment Information and Credit Rating Agency
of India Ltd. (ICRA) or the Credit Analysis and Research Ltd. (CARE) or the
FITCH Ratings India Pvt. Ltd. or such other credit rating agency (CRA) as may
he 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.
Limits and the Amount of Issue of CP
(i) CP
can be issued as a "stand alone" product. The aggregate amount of CP
from an issuer shall be within the limit as approved by its Board of Directors
or the quantum indicated by the Credit Rating Agency for the specified rating,
whichever is lower. Banks and FIs will, however, have the flexibility to fix
working capital limits duly taking into account the resource pattern of
companies' financing including CPs.
(ii) An FI
can issue CP within the overall umbrella limit fixed by the RBI i.e., issue of
CP together with other instruments viz., term money borrowings, term deposits,
certificates of deposit and inter-corporate deposits should not exceed
100 per cent of its net owned funds, as per the latest audited balance sheet.
(iii) The
total amount of CP proposed to be issued should be raised within a period of
two weeks from the date on which the issuer opens the issue for subscription.
CP may be issued on a single date or in parts on different dates provided that
in the latter case, each CP shall have the same maturity date.
(iv) Every issue of CP,
including renewal, should be treated as afresh issue.
Denominations
CP can be issued in denominations of Rs.5 lakhs or multiples thereof.
Amount invested by single investor should not be less than Rs.5 lakhs (face
value).
Maturity and Grace Period
(i) CP
can be issued for maturities between a minimum of 15 days and a maximum upto one
year from the date of issue. The maturity date of the CP should not go beyond
the date up to which the credit rating of the issuer is valid.
(ii) There
shall be no grace period for payment of CP. If the maturity date happens to
fall on a holiday, payment shall be made on the immediate preceding working
day.
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).
Mode of Issuance
(i) CP
can be issued either in the form of a promissory note (Schedule I Refer
Appendix 38.1) or in a dematerialised form through any of the depositories
approved by and registered with SEBI. As regards the existing stock of CP, the
same can continue to be held either in physical form or can be dematerialised,
if both the issuer and the investor agree for the same.
(ii) CP will be issued at a
discount to face value as may be determined by the issuer.
(iii) No issuer shall have
the issue of Commercial Paper underwritten or co-accepted.
Preference for Dematerialised form
While option is available to both issuers and subscribers, to issue/hold
CP in dematerialised or physical form, issuers and subscribers are encouraged
to prefer exclusive reliance on dematerialised form of issue/holding. However,
with effect from June 30, 2001 banks, Financial Institutions, PDs and SDs are
directed to make fresh investments and hold CPs only in dematerialised form.
Outstanding investments in scrip form in the books of banks, FIs, PDs and SDs
should also be converted into dematerialised form by October 31, 2001. Thus,
with effect from November 1, 2001 these entities will hold CP only in
dematerialised form.
Payment of CP
The initial investor in CP shall pay the discounted value of the CP by
means of a crossed account payee cheque to the account of the issuer through
IPA. On maturity of CP, when the CP is held in physical form, the holder of the
CP shall present the instrument for payment to the issuer through the IPA.
However, when the CP is held in demat form, the holder of the CP will have to
get it redeemed through the depository and receive payment from the IPA.
Stand-by Facility
In view of CP being a 'stand alone' product, it would not be obligatory
in any manner on the part of Banks and FIs to provide stand-by facility
to the issuers of CP. Banks and FIs have, however, the flexibility to provide
for a CP issue, credit enhancement by way of stand-by assistance/credit,
back-stop facility, etc., based on their commercial judgment, subject to
prudential norms as applicable and with specific approval of their Boards. 1[Non-bank entities
including corporates may also provide unconditional and irrevocable guarantee
for credit enhancement for CP issue provided:
a)
the issuer fulfils the eligibility criteria prescribed
for issuance of CP;
b)
the guarantor has a credit rating at least one
notch higher than then issuer by an
approved credit rating agency; and
c) the offer document for CP properly discloses the net worth of the guarantor company, the names of the companies to which the guarantor has issued similar guarantees, the extent of the guarantees offered by the guarantor company, and the conditions under which the guarantee will be invoked.
Banks are allowed to invest in CPs guaranteed by non-bank entities
provided their exposure remains within the regulatory ceiling as prescribed by
RBI for unsecured exposures.]
Who can act as
Issuing and Paying Agent (IPA)
Only a scheduled bank can act as an IPA for issuance of CP.
Note: "scheduled bank' means a bank included in
the Second Schedule of the Reserve Bank of India Act, 1934.
Procedure for Issuance
Every issuer must appoint an IPA for issuance of CP. The issuer should
disclose to the potential investors its financial position as per the standard
market practice. After the exchange of deal confirmation between the investor
and the issuer, issuing company shall issue physical certificates to the
investor or arrange for crediting the CP to the investor's account with a
depository. Investors shall be given a copy of IPA certificate to the effect
that the issuer has a valid agreement with the IPA and documents are in order
(Schedule III-Refer Appendix 38.III).
Role and Responsibilities
The role and responsibilities of issuer IPA and CRA are set out below
(i) Issuer
With the simplification in the procedures for CP issuance, issuers would
now have more flexibility. Issuers would, however, have to ensure that the
guidelines and procedures laid down for CP issuance are strictly adhered to.
(ii) Issuing
and Paving Agent (IPA)
(a) IPA
would ensure that issuer has the minimum credit rating as stipulated by the RBI
and amount mobilised through issuance of CP is within the quantum indicated by
CRA for the specified rating.
(b) IPA has
to verify all the documents submitted by the issuer viz., copy of board
resolution, signatures of authorised executants (when CP in physical form) and
issue a certificate that documents are in order. It should also certify that it
has a valid agreement with the issuer (Schedule III - Refer Appendix
38.III).
(c) Certified copies of
original documents verified by the IPA should be held in the custody of IPA.
(iii) Credit
Rating Agency (CRA)
(a) Code
of Conduct prescribed by the SEBI for CRAs for undertaking rating of capital
market instruments shall be applicable to them (CRAs) for rating CP.
(b) Further,
the credit rating agency would henceforth have the discretion to determine the
validity period of the rating depending upon its perception about the strength
of the issuer. Accordingly, CRA shall at the time of rating, clearly indicate
the date when the rating is due for review.
(c) While
the CRAs can decide the validity period of credit rating, CRAs would have to
closely monitor the rating assigned to issuers vis-a-vis their
track record at regular intervals and would be required to make its revision in
the ratings public through its publications and website.
Role of Fixed
Income Money Market and Derivatives Association of India (FIMMDA)
Fixed Income Money Market and Derivatives Association of India (FIMMDA),
as a self regulatory organisation (SRO) for the fixed income money market
securities, may prescribe, in consultation with the RBI, for operational
flexibility and smooth functioning of CP market, any standardised procedure and
documentation that are to be followed by the participants, in consonance with
the international best practices.
Reporting of Issuance of CP
Every CP issue should be reported to the Chief General Manager,
Industrial and Export Credit Department (IECD), Reserve Bank of India. Central
Office, Mumbai through the Issuing and Paying Agent (IPA) within three days
from the date of completion of the issue, incorporating details as per Schedule
11 (Refer Appendix 38.11).
Reporting of Defaulters
in Repayment of CP1
RBI has advised1 Banks
which act as IPAs to report full particulars of defaults in repayment of CPs to
RBI, immediately on occurrence in the prescribed format.2
Penalties for Violation of Guidelines
Violation of these guidelines will attract penalties prescribed in the
Act by the RBI and may also include debarring from the CP market.
Non-applicability of Certain Other Directions
Nothing contained in the Non-Banking Financial Companies
Acceptance of' Public Deposits (Reserve Bank) Directions, 1998 shall apply to
any non-banking financial company (NBFC) insofar as it relates to
acceptance of deposit by issuance of CP, in accordance with these Guidelines.
Note: "Non-banking financial
company" means a company as defined in Section 45 I (f) of the Reserve
Bank of India Act, 1934.
Exemption from the Provisions of Section 58A of the Companies Act, 1956
Central Government has vide Notification No. GSR 1075 (E) dated
29.12.1989 exempted the eligible companies from the provisions of subsections
(1) to (7) (both inclusive) of Section 58A of Companies Act, 1956 with respect
to deposits received by non-banking companies by issue of commercial
paper subject to the following conditions:
(i) The
companies shall comply with the terms and conditions stipulated from time to
time, by Reserve Bank of India relating to the issue of' such commercial paper
and
(ii) The
companies shall, in their annual accounts disclose the maximum amount raised at
any time during a financial year and the amount outstanding as at the end of
the financial year.
FEMA Regulations in
respect of Commercial Paper
According to Regulation No. 8(2) of the Foreign Exchange Management
(Deposit) Regulations, 2000, deposits accepted by an Indian company by issue of
commercial paper to a Non-Resident Indian shall be subject to the
following conditions, namely:
(a) the
issue is in due compliance with the Non-Banking Companies (Acceptance of
Deposits through Commercial Paper) Directions, 1989 issued by the Reserve Bank
as also any other law, rule, directions, orders issued by the Government or any
other regulatory authority, in regard to acceptance of deposits by issue of
Commercial Paper;
(b) payment
for issue of Commercial Paper is received by the issuing company by inward
remittance from outside India through normal banking channels or out of funds
held in a deposit account maintained by a Non-Resident Indian in
accordance with the Regulations made by Reserve Bank in that regard;
(c) the amount invested in
Commercial Paper shall not be eligible for repatriation outside India; and
(d) the Commercial Paper
shall not be transferable.
APPENDIX 38.I
SCHEDULE I
_________________________________________________________________________________
(NAME OF THE ISSUING COMPANY/INSTITUTION)
Serial No :
Issued at :
Date
of Issue:
..
(PLACE)
Date of Maturity :
..
without days of grace.
(if such date happens to fall on a holiday, payment shall be made on the
immediate preceding working day).
For value received ......................................................
..
hereby
(NAME
OF THE ISSUING COMPANY/INSTITUTION)
promises to pay
or order on the
(NAME OF THE INVESTOR)
maturity date as specified above the sum of Rs
..............
.
(in words) upon presentation and surrender of this Commercial Paper
to
..
(NAME OF THE ISSUING AND PAYING AGENT)
For and on behalf of
................................................................
(NAME OF THE ISSUING COMPANY/INSTITUTION)
AUTHORISED SIGNATORY AUTHORISED
SIGNATORY
_______________________________________________________________________________________
ALL ENDORSEMENTS UPON THIS COMMERCIAL PAPER MUST BE CLEAR AND DISTINCT, EACH ENDORSEMENT SHOULD BE WRITTEN WITHIN THE SPACE ALLOTTED.
________________________________________________________________________________________
Pay to
.
or order the amount within named.
(NAME OF THE TRANSFEREE)
For and on behalf of
.
(NAME OF THE TRANSFEROR)
1.
2.
3.
4.
5.
6.
7.
8.
.
APPENDIX38.II
SCHEDULE
II
Proforma of information to be submitted by the
Issuer for issue of Commercial Paper
[To be submitted to The Reserve Bank through the Issuing and Paying
Agent (IPA)]
To
The Chief General
Manager
Industrial and Export
Credit Department
Reserve Bank of India
Central Office
Mumbai - 400
001
Through: (Name of
IPA)
Dear Sir,
Issue of Commercial Paper
In terms of the
Guidelines for issuance of commercial paper issued by the Reserve Bank dated
July 23. 2001, we have issued Commercial Paper as per details furnished
hereunder:
(i) Name of the Issuer :
(ii) Registered Office and Address :
(iii) Business activity :
(iv)
Name/s of Stock Exchange/s with :
whom
shares of the issuer are
listed
(if applicable)
(v) Tangible net worth as per latest :
audited balance sheet
(vi) Total Working Capital Limit :
(vii) Outstanding Bank Borrowings :
(viii) (a) Details
of Commercial Paper
issued (Face Value) : Date Date
Amount Rate
of
Issue of Maturity
(i)
(ii)
(b)
Amount of CP outstanding :
(Face
Value) including the
present
issue
(ix) Rating(s) obtained from the Credit : (i)
Rating
Information Services of (ii)
India
Ltd. (CRISIL) or any other (iii)
agency
approved by the Reserve Bank
(x) Whether standby facility has been
provided in respect of CP issue ? :
(xi) If yes
(i) the
amount of the standby facility : Rs. Crore
(ii) provided by (Name of bank/FI) :
For
and on behalf of
(Name
of the issuer)
Note: Copy of
the latest audited balance sheet (at item v) and copy of the credit rating
certificate (at item ix) is not required to be enclosed w.e.f. 12.11.2002 vide
IECD 11/08.15.01/2002-03 dt.12.11.2002.
APPENDIX 38.III
SCHEDULE III
Certificate
We have a valid IPA
agreement with the ...........................................
..
(Name
of Issuing Company/institution)
2. We have verified
the documents viz., board resolution and certificate issued by Credit Rating
Agency submitted by
.....................................
(Name of the Issuing
Company/institution)
and certify that the
documents are in order. Certified copies of original documents are held in our
custody.
3. We also hereby
certify that the signatures of the executants of the attached Commercial Paper
bearing Sr. No
.. dated
for Rs
.(Rupees
.)
(in words)
tally with the
specimen signatures filed by
.
(Name
of the Issuing Company/Institution)
(Authorised
Signatory/Signatories)
(Name and address of Issuing and Paying
Agent)
Place:
Date:
* (Applicable to CP
in physical form)
APPENDIX 38.IV
Details of Defaults on CP
|
Name of |
Amount |
Date of |
Due |
Latest |
Whether |
If so, the |
Whether |
|
the Issuer |
|
Issue of |
Date of |
Rating |
The CP |
Name of the |
The |
|
|
|
CP |
payment |
|
Issue |
Entity |
Facility |
|
|
|
|
|
|
enjoyed a |
Providing |
at Col. |
|
|
|
|
|
|
Stand by |
the facility |
(6) has |
|
|
|
|
|
|
assistance/ |
indicated at |
Been |
|
|
|
|
|
|
credit |
Col. (6) |
honoured |
|
|
|
|
|
|
back stop |
|
And |
|
|
|
|
|
|
facility/ |
|
payment |
|
|
|
|
|
|
guarantee |
|
made. |
|
|
(2) |
(3) |
(4) |
(5) |
(6) |
(7) |
(8) |
|
|
|
|
|
|
|
|
|