Ref.No.IECD.2 /08.15.01/2001-02 July 23, 2001 The Chairmen/Chief
Executives of All Scheduled Banks, Primary Dealers, Satellite Dealers and
All-India Financial Institutions Dear Sirs, Guidelines
for Issue of Commercial Paper As you are aware, following
issuance of revised guidelines for issue of commercial paper (CP) by Reserve Bank
of India, vide Notification No. IECD/1/08.15.01/2000-01 dated October 10, 2000,
Fixed Income Money Market and Derivatives Association of India (FIMMDA) was required
to prescribe standardised procedure and documentation to be followed by the participants
in CP market in consonance with the international best practices. FIMMDA has since
finalised its operational guidelines in consultation with RBI and has made public
the same. 2.The FIMMDA guidelines,
as approved by RBI, necessitate certain amendments in the guidelines for issue
of commercial paper contained in the RBI Notification No. IECD/1/08.15.01/2000-01
dated October 10, 2000 as amended vide Notification No.IECD / 2 /08.15.01/2000-01
dated April 30, 2001. Accordingly, the guidelines for issue of CP issued by RBI
in terms of the aforesaid notifications have been amended suitably. A copy of
notification No. IECD/ 3 /08.15.01/2001-02 dated July 23, 2001 amending the said
notifications is enclosed (Annexure I). Full text of the guidelines
for issue of CP incorporating all the amendments issued till date is also enclosed
for ready reference (Annexure II). Consequent to the amendments
in guidelines for issue of CP, banks may substitute paragraph 13.B.1.8 in the
Manual of Instructions issued by RBI (DBOD, DBS and IECD) by the enclosed guidelines. Yours
faithfully, Sd/- (Smt R.K.Makhija) General Manager Encl.
As above ANNEXURE
I Reserve Bank of India Industrial and Export Credit
Department Central Office Mumbai - 400 001 Notification No.IECD/ 3
/08.15.01/2001- 02 Dated: July 23, 2001
In exercise of the powers conferred by Sections 45J, 45K and 45L of the Reserve
Bank of India Act, 1934 (2 of 1934) and all the powers enabling it in this behalf,
the Reserve Bank of India, being satisfied that it is necessary in the public
interest so to do, hereby directs that the 'Guidelines for Issue of Commercial
Paper (CP)' issued vide Notification No.IECD 1/08.15.01/2000-01 dated October
10, 2000 as amended vide Notification No.IECD/2/08.15.01/2000-01 dated April 30,2001
shall be further amended in the following manner with effect from July 23, 2001.
- In paragraph 7, the second sentence may be
substituted by the following sentence:
'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.' - In paragraph 5, the following
sentence may be added at the end of the paragraph:
'
The maturity date of the CP should not go beyond the date up to which the credit
rating of the issuer is valid. ' - In paragraph 20,
sub-item (iii) under item (b) may be read as under:
'Certified
copies of original documents verified by the IPA should be held in the custody
of IPA.' - Paragraph 21 may be substituted by the
following paragraph:
'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.' - In Schedule
III to the Notification specifying the format of certificate from IPA, the
expression ' Original documents are held in our custody' may be substituted by
the expression ' Certified copies of original documents are held in our custody'.
Sd/-
(D.P.Sarda) Executive Director Annexure
II Guidelines for Issue of Commercial Paper (CP) as amended
up to July 23, 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 for 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 45 J, 45 K and 45 L of the Reserve Bank of
India Act, 1934 (2 of 1934) had issued revised guidelines for issue of CP vide
Notification No. IECD/1/08.15.01/2000-01 dated October 10, 2000 as amended vide
Notification No.IECD / 2 /08.15.01/2000-01 dated April 30, 2001, replacing all
earlier directions/guidelines on the subject. Full text of the guidelines for
issue of CP incorporating all the amendments issued till date is given below for
ready reference. 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/s/ institution/s. 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 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. 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. The maturity date of the CP 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. 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. 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 inter-corporate 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 Agent (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
I) 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. 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. However, with effect from June 30, 2001, banks, FIs, PDs
and SDs are directed to make fresh investments and hold CP 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 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 receive 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
III). 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, 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). (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 (NBFC) 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 Definitions
In these guidelines, unless the context otherwise requires
: - '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.
- 'scheduled
bank' means a bank included in the Second Schedule of the Reserve Bank of India
Act, 1934.
- '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.
- '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.
- '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.
- '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.
- 'non-banking company' means a company
other than banking company.
- 'non-banking financial
company' means a company as defined in Section 45 I (f) of the Reserve Bank of
India Act, 1934.
- 'working
capital limit' means the aggregate limits, including those by way of purchase/discount
of bills sanctioned by one or more banks/FIs 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 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.
- 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.
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