Q. What is Commercial Paper (CP)?
A:Commercial Paper (CP) is an unsecured money market instrument issued in the form of a promissory note.
Q. When it was introduced?
A:It was introduced in India in 1990.
Q. Why it was introduced?
A: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.
Q. Who can issue CP?
A:Corporates, primary dealers (PDs) and the All-India Financial Institutions (FIs) are eligible to issue CP.
Q. Whether all the corporates would automatically be eligible to issue CP?
A:No. 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.
Q. Is there any rating requirement for issuance of CP? And if so, what is the rating requirement?
A:Yes. All eligible participants shall obtain the credit rating for issuance of Commercial Paper either from 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 be specified by the Reserve Bank of India from time to time, for the purpose.
The minimum credit rating shall be A-2 [As per rating symbol and definition prescribed by Securities and Exchange Board of India (SEBI)].
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.
Q. What is the minimum and maximum period of maturity prescribed for CP?
A: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.However, the maturity date of the CP should not go beyond the date up to which the credit rating of the issuer is valid.
Q. What is the limit up to which a CP can be issued?
A: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.
As regards FIs, they can issue CP within the overall umbrella limit prescribed in the Master Circular on Resource Raising Norms for FIs, issued by DBOD and updated from time-to-time.
Q:. In what denominations a CP that can be issued?
A:CP can be issued in denominations of Rs.5 lakh or multiples thereof.
A:Commercial Paper (CP) is an unsecured money market instrument issued in the form of a promissory note.
Q. When it was introduced?
A:It was introduced in India in 1990.
Q. Why it was introduced?
A: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.
Q. Who can issue CP?
A:Corporates, primary dealers (PDs) and the All-India Financial Institutions (FIs) are eligible to issue CP.
Q. Whether all the corporates would automatically be eligible to issue CP?
A:No. 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.
Q. Is there any rating requirement for issuance of CP? And if so, what is the rating requirement?
A:Yes. All eligible participants shall obtain the credit rating for issuance of Commercial Paper either from 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 be specified by the Reserve Bank of India from time to time, for the purpose.
The minimum credit rating shall be A-2 [As per rating symbol and definition prescribed by Securities and Exchange Board of India (SEBI)].
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.
Q. What is the minimum and maximum period of maturity prescribed for CP?
A: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.However, the maturity date of the CP should not go beyond the date up to which the credit rating of the issuer is valid.
Q. What is the limit up to which a CP can be issued?
A: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.
As regards FIs, they can issue CP within the overall umbrella limit prescribed in the Master Circular on Resource Raising Norms for FIs, issued by DBOD and updated from time-to-time.
Q:. In what denominations a CP that can be issued?
A:CP can be issued in denominations of Rs.5 lakh or multiples thereof.
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