Appendix 55
[Circular No. Ref. No. IECD.3108.15.01.2000‑2001, issued by
Reserve Bank of India, dated
October 10, 2000]
As part of efforts to develop the money market, Commercial Paper (CP)
was introduced in India in 1990 with a view to enabling highly rated corporate
borrowers to diversify their sources of short term borrowing and also provide
an additional financial instrument to investors. As you are aware, the present
guidelines for issue of Commercial Paper (CP) by companies, primary dealers and
statellite dealers are governed by the Directions issued by Reserve Bank of
India (RBI) vide (i) Notification No.
IECD. 1/87(CP)‑89190, dated 11 December, 1989, (ii) Notification No
IECD.14108.15.01196‑97, dated 6 September, 1996 and (iii) Notification
No. IECD.21108.15.01/97 98, dated 17th June, 1998, respectively, and as amended
from time to time.
2. As indicated in the Statement on Monetary and Credit Policy for the
year 2000‑2001, to keep pace with several developments in the financial
market, the current guidelines for issue of CP had been reviewed by an Internal
Group and it was decided to modify the guidelines in the light of the Group's
recommendations.
3. The draft guidelines for issue of CP were released for public
comments on 6 July, 2000. As announced in the Mid‑Term Review of Monetary
and Credit Policy for the year 2000‑2001, taking into account the
suggestions received from the participants, the guidelines have now been
finalised.
4. As the new guidelines have been issued in supersession of all the
earlier guidelines/directions on the subject, banks may substitute paragraph
13.B. 1.8 in the manual of instructions issued by RBI (DBOD, DBS and IECD) by
the enclosed guidelines.
GUIDELINES FOR ISSUE OF COMMERCIAL PAPER (CP)
as amended on 23‑7‑2001
Introduction
.. Commercial Paper (CP) is an unsecured money market instrument issued
in the form of a promissory note. CP as a privately placed instrument, 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 to their operations. To keep pace with
several developments in the financial market, and in the light of
recommendations made by an Internal Group, Reserve Bank in exercise of the
powers conferred by sections 45J, 45K and 45L of the Reserve Bank of India Act,
1934 (2 of 1934) had issued revised guidelines for issue of CP vide Notification No.
IECD/1/108.15.01/2000‑01, dated October 10th, 2000 as amended vide Notification No.
IECD/2/08.15.01/2000‑01, dated 30th April, 2001, replacing all earlier
directions/guidelines on the subject
Who can issue Commercial Paper (CP)
2.
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.
3. 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/slinstitutionls.
Rating requirement
4.
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 Rating
India (P) 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. 7he issuers shall ensure at the time of issuance of CP that the
rating so obtained is current and has not fallen due for review.
Maturity
5.
CP can be issued for maturities between a minimum of 15 days and a maximum upto
one year from the date of issue. lle maturity date of the C.P. should not go
beyond the date up to which the credit rating of the issuer is valid.
Denominations
6.
CP can be issued in denominations of Rs. 5 lakh or multiples thereof. Amount
invested by single investor should not be less than Rs. 5 lakh (face value).
Limits and the amount of issue of CP
7.
CP can be issued as a 'stand alone' product. lle 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. Bank and FIs will, however, have the flexibility to fix working capital
limits duly taking into account the resource pattern of companies' financing
including CPs.
8.
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 intercorporate deposits should not exceed
100 per cent. of its net owned funds, as per the latest audited balance sheet.
9.
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.
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 Agency (IPA) within three days from the date of
completion of the issue, incorporating details as per Schedule II.
10.
Every issue of CP, including renewal, should be treated as a fresh issue.
Who can act as Issuing and Paying Agent (IPA)
11.
Only a scheduled bank can act as an IPA for issuance of CP.
Investment in CP
12.
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
13. CP can be issued either in the form of a promissory note (Schedule
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 demateralised, if both
the issuer and the investor agree for the same.
14. CP will be issued at a discount to face value as may be determined
by the issuer.
15. No issuer shall have the issue of Commercial Paper underwritten or
co‑accepted.
Preference for dematerialised
form
16. 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. Banking, financial institutions, PDs and SDs are advised to
invest and hold CPs only in dematerialised form, as soon as arrangements for
such dematerialisation are put in place.
Payment of CP
17. 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 received payment from the IPA.
Stand‑by facility
18. 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 would, however, have the
flexibility to provide for a CP issue, credit enhancement by way of stand‑by
assistance/credit backstop facility, etc., based on their commercial judgement
and as per terms prescribed by them. However, these should be within the
prudential norms as applicable and subject to specific approval of the Board.
Procedure for issuance
19. 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 111).
Role and responsibilities
20. The role and responsibilities of issuer, IPA and CRA are set out
below
(a) 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.
(b) Issuing and Paying Agent
(IPA)
(i) 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.
(ii) IPA has to verify all the
documents submitted by the issuer viz., copy of Board resolution, signature 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 111).
(iii) Certified copies of
original documents verified by the IPA should be held in the custody of IPA.
(c) Credit Rating Agency
(CRA)
(i)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.
(ii)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.
(iii)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.
21. 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.
22. 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
23. Nothing contained in the Non‑Banking Financial Companies
Acceptance of Public Deposits (Reserve Bank) Directions, 1998 shall apply to
any non‑banking financial company (N13FC) insofar as it relates to
acceptance of deposit by issuance of CP, in accordance with these Guidelines.
24. Definitions of certain terms used in the guidelines are provided in
the Annexure.
ANNEXURE
Derinitions.‑In these guidelines, unless the
context otherwise requires
(a) 'bank' or 'banking company'
means a banking company as defined in clause (c) of section 5 of the Banking
Regulation Act, 1949 (10 of 1949) or a 'corresponding new bank', 'State Bank of
India' or 'subsidiary bank' as defined in clause (da), clause (nc) and clause
(nd) respectively thereof and includes a 'co‑operative bank' as defined
in clause (cci) of section 5 read with section 56 of that Act.
(b) 'scheduled bank' means a
bank included in the, Second Schedule of the Reserve Bank of India Act, 1934.
(c) 'All‑India Financial
Institutions (FIs)' mean 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.
(d) '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 29 March, 1995, as amended from
time to time.
(e) '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 31 December, 1996, as
amended from time to time.
(f) '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.
(g) 'non‑banking company'
means a company other than banking company;
(h) 'non‑banking financial
company' means a company as defined in section 45‑I(f) of the Reserve
Bank of India Act, 1934.
(i) '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.
'Tangible net worth' means the paid‑up capital plus free reserves
(including balances in the share premium account, capital and debenture
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 re‑valuation on 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.
(k) words and expressions used but not defined herein and defined
in the Reserve Bank of India Act, 1934 (2 of 1934) shall have the same meaning
as assigned to them in that Act.
Stamp duty to be affixed as in force in the State in which it is to be
issued.
....................................................... . .
(Name of the issuing company/institution)
Serial No . ..........................................
Issued at : .................. (place)................................................................... Date
of issue :
.
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 ........................... (name
of the issuing company/ institution)
hereby promises to pay (name of the investor)
on the maturity date as specified above, the sum of Rs . (in words) upon presentation and surrender of
this Commercial Paper .................................................(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 clean and distinct.
Each endorecement
should be written within the space
allotted.
1. Pay to
.. (Name of transferee) or
order the amount named.
For and on behalf of
.
(Name
of the transferor)
1 2.
3. 4.
5. 6.
7. 8.
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)Issue
Commercial Paper
In terms of the Guidelines for issuance of Commercial Paper issued by
the Reserve Bank, dated 10 October, 2000, we have issued commercial paper as
per details furnished hereunder:
(i) Name of 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 (copy enclosed)
(vi) Total working capital limit
(vii) Outstanding bank borrowing
(viii) (a)Details of Commercial
Paper issued Date Date of Amount
of Rate
(face value) Issue Maturity
(b) Amount of CP outstanding (face
(i)
value) including the present issue.
(ii)
(ix) Rating(s) obtained from the Credit Rating (i)
Information Services of India
(CRISIL) or
any other agency approved by the
Reserve (ii)
Bank (A copy of the rating
certificate
should be enclosed)
(x) Whether standby facility has been pro
vided 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 behalf of ..........................................
(Name of the issuer)
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 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 issuing company/institution).
................................................... (Authorised
Signatory/Signatories)
(Name and address of issuing and paying agent)
Place............................................ ..................................
Date............................................. ..................................
*Applicable to CP in physical form.