COMMERCIAL PAPER- MONEY MARKET INSTRUMENT

             

         Commercial paper is a money market instrument. It is an unsecured means of finance. It is issued in the form of promissory note. Since it is an unsecured money market instrument it is highly regulated by RBI guidelines. Because of money market is regulated by RBI.

          

         The purpose of issue of commercial paper as defined by RBI is as follows:

            

              1.       Enabling the highly rated corporate borrowers to diversify their source of short term      borrowings.

              2.       To provide additional instrument to the short term investor.

Maturity periods :     7 days to 1 year.

Minimum issue:         Rs 500000 or multiples thereof.

Condition:

1.       Tangible net worth >= 5 crores.

2.       Fund base working capital limit >=5 crores.

3.       Credit rating from the rating agencies.

4.       At the time of apply to RBI credit rating should not be more than two months old.

5.       Current ratio should be 1.33:1.

6.       Other than PSU it should be listed in one or more stock exchange.

All the above criteria is required to be fulfilled by the company to issue COMMERCIAL PAPER.