RBI revamps Directions for issuance of Commercial Paper

are eligible to issue CPs subject to the condition that any fund-based facility availed of from bank(s) and/or financial institutions is classified as a standard asset by all financing banks/institutions at the time of issue.

1. with sanctioned working capital limit and
2. standard asset classification

by banks/ FIs

1. with tangible net worth of not less than 4 crores;
2. with working capital; and
3. standard asset classification by banks

are eligible to issue CPs subject to the condition that any fund-based facility availed of from bank(s) and/or financial institutions is classified as a standard asset by all financing banks/institutions at the time of issue.

1. with sanctioned working capital limit and
2.  standard asset classification

by banks/ Fis

a.       having presence in India;

b.      with a net worth of Rs. 100 crore or higher; and

c.       subject to the condition that any fund-based facility availed of from bank(s) and/or financial institutions is classified as a standard asset by all financing banks/institutions at the time of issue.

1. with working capital and
2.  standard asset classification by banks
3. Minimum net-worth of Rs. 100 crores

1. All residents, and non-residents permitted to invest in CPs under Foreign Exchange Management Act, 1999 are eligible to invest in CPs;
2. No person can invest in CPs issued by related parties either in the primary or secondary market.
3. Regulated financial sector entities subject to regulatory restrictions as applicable to them.

1. Residents
2. Non-residents
3. Regulated financial sector entities subject to regulatory restrictions as applicable to them

Related parties cannot invest

1. Individuals
2. Banks
3. Other body corporates/ unincorporated entities
4. Non-residents Indians
5. Foreign institutional investors subject to regulatory restrictions as applicable to them

a.    credit rating for issuance of CPs from 2 (Two) rating agencies and lower rating to be quoted

b.   Where both ratings are the same, the issuance shall be for the lower of the two amounts for which ratings are obtained.

c.    Minimum rating is A3

b.    Minimum rating is A3

b.    Minimum rating is A3

In case the rating issued by both the CRAs are same, then the issuer shall be able to issue CPs to the extent of the lower of the two amounts for which ratings have been obtained.

Let us take an example –

Company A obtains the following ratings –

·         Rating Agency A – A1 for Rs.1000 crores

·         Rating Agency B – A1 for Rs. 1500 crores

Here the Company will be able to issue CPs to the extent of Rs. 1000 crores only.

Now, what if the Company wants to raise another Rs. 500 crores? – It will have to seek a fresh rating from Rating Agency A for Rs. 1500 crores.

b.    Comply with all relevant requirements under these directions and furnish a declaration in this regard to the IPA.

c.    Furnish the board resolution authorizing the company to borrow through issuance of a CP to the IPA.

d.   Keep the bank(s) from whom it has outstanding fund or non-fund based credit facility(ies) informed of its market borrowings, including through CPs, latest by the end of the month in which a CP was issued.

e.    Arrange for crediting the CP to the demat account of the investor with the depository through the IPA within 7 (Seven) days of issue.

f.     Route all subscriptions/ redemptions/ buybacks/ payments and default details through the IPA.

g.    Submit a certificate from the CEO/ CFO to the concerned IPAs on quarterly basis that CP proceeds are used for disclosed purposes, and certifying adherence to other conditions of the offer document and the CP directions. The certificate may be provided within 15 (Fifteen) days from the close of the quarter.

h.   Inform the CRA and IPA on the same day about any default/ delay in CP related payments.

i.      The issuer who has defaulted on a CP shall not be allowed to access the CP market for 6 (Six) months from the date of repayment of the defaulted obligation.

b.     Appoint an IPA for issuance of CP.

c.     Furnish the Board Resolution authorizing the company to borrow through issuance of CP to the IPA.

d.    Keep the bank (s) from whom it has outstanding credit facility (ies) informed of its market borrowings, including through CPs, latest by the date of borrowing.

e.     Arrange for crediting the CP to the Demat account of the investor with the depository through the IPA.

f.      Route all subscriptions/redemptions/payments through the IPA.

g.     Submit a certificate from the CEO/CFO to the concerned IPAs on quarterly basis that CP proceeds are used for disclosed purposes, and certifying adherence to other conditions of the offer document.

b.      Until CCIL advises full operationalisation of F-TRAC, the current reporting arrangements shall continue.

b.      Report the details of issuance of CP and instances of default on the F-TRAC platform by same day before close of the business hours.

1. Report the details of issuance of CP on the Online Returns Filing System (ORFS) module of the RBI within 2 (Two) days from the date of issuance of the CP.
2. On occurrence of default in repayment of CP report to CGM, Financial Markets Department, RBI, Mumbai.
3. On buyback report CGM, Financial Markets Department, RBI, Mumbai.

b.      3 (Three) years audited financials or if the issuer has not been in existence for three years, available audited financials, material litigation and regulatory strictures

c.       Default of CPs or any other borrowings for past three years.

d.      Details of current tranche including amount, current credit rating, name of credit rating agency, its validity period and details of IPA

e.       End-use

b.      CPs outstanding and new issuance information

c.       Ratings received

d.      Defaults in CPs in the past, including technical defaults.

e.       End use

The exact end use shall be disclosed in the offer document at the time of issue of a CP.

In most cases, CPs are issued for general corporate purposes.

b.      Buy-back to be extended to all investors and the terms of the buyback should be identical for all investors in the issue.

c.       Cannot buy back before 30 (Thirty) days of issuance

d.       Needs to extinguish once bought back

b.      Needs to extinguish once bought back

c.       Buy-back to be extended to all investors

b.    Buy-back is to be effected through secondary market

Further, earlier, the Directions did not specify anything regarding the buy-back price, but as per the New Directions, the buy-back has to be done at the prevailing market price.

b.   Banks and FIs may, based on their commercial judgement, choose to provide stand-by assistance/credit, back-stop facility etc. by way of credit enhancement for a CP issue.

c.    Non-bank entities (including corporates) may provide unconditional and irrevocable guarantee for credit enhancement for CP issue provided 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.

b.   Publicly disseminate the ratings of the CP and any subsequent change in the ratings, on the date of rating or change in rating, as the case may be.