There are different instruments to mobilise funds if a company or a financial entity wishes. Some of these instruments are long term instruments like bonds which are issued for more than one year (repayment period more than one year). Similarly, there are short term instruments like certificate of deposits and commercial papers which are issued to mobilise funds for short period of time like less than one year.
What is Commercial Paper (CP)?
Commercial Paper (CP) is a short-term debt instrument issued by companies/financial entities to get funds up to a maturity period of one year. They are unsecured money market instruments issued in the form of a promissory note and held in a dematerialized form. Basically, CP is a money market instrument.
A CP is issued in a minimum denomination of Rs. 5 lakh and multiples thereof. CPs have a minimum maturity of seven days and a maximum of up to one year from the date of issue.
Who can issue CPs?
As per the RBI regulations, CPs can be issued by a number of institutions especially companies. Following are the type of entities who can issue Commercial Paper as per the RBI regulations.
- Companies, including Non-Banking Finance Companies (NBFCs) and All India Financial Institutions (AIFIs);
- Any other body corporate with a minimum net worth of ₹100 crore or higher, provided that the body corporate is statutorily permitted to incur debt or issue debt instruments in India; and
- Any other entity specifically permitted by the Reserve Bank.
All residents and non-residents permitted to invest in CPs under FEMA, 1999, are eligible to invest in CPs.