The CP introduced in the Indian financial market, for the recommendations of the Vaghul Committee has turn into a well-liked debt instrument of the corporate world. Commercial Paper is a debt instrument for short-term borrowing that enables highly rated corporate borrowers to vary their sources of short-term borrowings and gives an additional financial instrument to investors along with a freely negotiable interest rate. The maturity period ranges from three months to less than a year. As this is a short-term debt, the issuing company is needed to meet dealers' fees, rating agency fees and another relevant charge. CP is short-term unsecured promissory note issued through corporations along with high credit ratings.
Salient Features:
Eligibility Criteria: A company can concern CP only whether:
1) CPs tangible net worth is not less than Rs. 4 crore according to the latest audited balance sheet;
2) CPs fund based working capital limit is not less than Rs. 4 crore;
3) This has acquired the identified minimum credit rating for issuance of commercial paper from an approved credit rating agency. That credit rating must not be more than 2 months old at the time of issue of the commercial paper;
4) CPs borrowal account is classified by 'standard' through the financing bank; and
5) This has a minimum current ratio of 1.33:1 according to the latest audited balance sheet and the classification of current liabilities and assets are in conformity along with the Reserve Bank guidelines issued by time to time.