Reserve bank commercial paper directions

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Notification of Reserve Bank Commercial Paper Guidelines, 2017

The RBI has by a notification dated August 10, 2017 issued the Reserve Bank Commercial Paper Directions, 2017 (‘New CP Directions’) in supersession of the existing directions on the same, which inter alia specifies the following:

i. A commercial paper (‘CP’) will be issued in the form of a promissory note, held in a dematerialized form with a denomination of Rs. 5 lakhs (approx. US$ 7,600) or multiples thereof. The issuance must be at a discount to face value with no issuer having such issue underwritten or co-accepted. Optionality clauses, such as put and call options, are not permitted on a CP. The original tenor of a CP must be between seven days to one year.

ii. Companies, including non-banking financial companies and All India Financial Institutions will be eligible to issue CPs, with no minimum net worth requirement. Entities such as co-operative societies / unions, Government entities, trusts, LLPs and other bodies corporate can also issue CPs, provided that they have a presence in India and a minimum net worth of Rs. 100 crores (approx. US$ 15.3 million).

iii. Eligible investors include all residents, non-residents who are permitted to invest in CPs under the exchange control regulations. However, no person is allowed to invest in CPs issued by related parties either in primary or secondary market. Additionally, investment by regulated financial sector entities will be subject to conditions imposed by the concerned regulator.

iv. Issuers, whose total CP issuance during a year is Rs. 1,000 crores (approx. US$ 153 million) or more, should obtain credit rating of a minimum of ‘A3’ from at least two SEBI registered credit rating agencies.

v. No end-use restriction to a CP issuance has been prescribed but it should be disclosed in the offer document at the time of issuance.

vi. The buyback of a CP, in full or in part, must be at the prevailing market rate, which cannot be made before 30 days from the date of the issue.

vii. A CP will be a ‘stand-alone’ product, with banks and financial institutions optionally choosing to provide stand-by assistance / credit, back stop facility, etc. as a means of credit enhancement. Non-banking entities 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, among other details.

viii. In case of secondary market trading and settlement of CP, all over-the-counter trades in CP will be reported within 15 minutes of the trade to the Financial Market Trade Reporting and Confirmation Platform of Clearcorp Dealing System (India) Ltd.

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