Questions and Answers
What is the maximum period within which the total amount of Commercial Paper (CP) proposed to be issued must be raised?
Who is permitted to act as the Issuing and Paying Agent (IPA) for the issuance of Commercial Paper?
What is the mode of issuance for Commercial Paper?
Which of the following entities can invest in Commercial Paper?
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Investment by Foreign Institutional Investors (FIIs) in Commercial Paper is regulated by which authority?
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What role does SEBI play in the Indian financial system?
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Which of the following institutions is NOT part of the All India financial institutions?
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Which act regulates the foreign exchange market in India?
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State Financial Institutions provide which of the following to corporations?
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What is a major characteristic of non-banking financial institutions in India?
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Study Notes
Commercial Paper (CP) Issuance
- Total CP issuance must occur within two weeks from the subscription opening date.
- CP can be issued on a single date or in parts on different dates, but all parts must share the same maturity date.
- Each CP issue, including renewals, is treated as a fresh issue.
Issuing and Paying Agent (IPA)
- Only scheduled banks are authorized to act as an IPA for CP issuance.
Investment in Commercial Paper
- CP can be issued to individuals, banking companies, registered corporate bodies, unincorporated entities, NRIs, and FIIs.
- Investments by FIIs are subject to limits set by SEBI.
Mode of Issuance
- CP can be issued in the form of promissory notes or dematerialized form via authorized depositories.
- Issuance is at a discount to face value, as determined by the issuer.
- No underwriting or co-acceptance of CP is permitted.
Procedure for CP Issuance
- An IPA must be appointed by the issuer.
- Issuers must disclose their financial position to potential investors according to market standards.
Financial Institutions in India
- All India Financial Institutions include term-lending, specialized, and investment institutions, such as banks and insurance companies.
- State financial institutions provide project financing and corporate loans.
- Non-banking Financial Institutions offer loans and hire-purchase finance, regulated by RBI.
Regulatory Framework
- RBI governs foreign exchange under the Foreign Exchange Management Act (FEMA).
- SEBI is the authority for capital markets, established under the Securities and Exchange Board of India Act, 1992.
- Insurance sector dominated by state-owned corporations, regulated by the Insurance Development and Regulatory Authority (IRDA).
Commercial Paper Issuers
- Eligible issuers of CP include corporates, Primary Dealers (PDs), and All India Financial Institutions.
- Corporates must have tangible net worth of at least 4 crores and a sanctioned working capital limit from a bank.
- The borrowal account must be classified as a Standard Asset.
Rating Requirements
- Eligible participants must obtain a credit rating for CP issuance from authorized agencies such as CRISIL, ICRA, CARE, or FITCH.
- Minimum credit rating required is P-2 from CRISIL or an equivalent rating from other agencies.
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Description
This quiz covers the essential guidelines for issuing Commercial Paper (CP), including timelines for subscriptions and maturity conditions. Test your understanding of how CP can be issued in parts and the implications of renewals. Perfect for finance students and professionals.
