RBI allows FIs to issue CPs

RBI allows FIs to issue CPs
ENS ECONOMIC BUREAU

MUMBAI, JULY 6: The Reserve Bank of India (RBI) has capped the total amount to be raised by corporates through issuance of commercial paper (CP) to 50 per cent of the working capital limit set for them by banks. Corporates raising CPs will be required to have a minimum net worth of Rs four crore.

The maturity profile for CPs have been maintained between 15 days and one year. "A company shall be eligible to issue CPs provided its working capital (fund based) limit from the banking system is not less than Rs four crore and the borrowal account of the company is classified as a standard asset by the financing banks," the draft guidelines said.

Corporates wishing to raise CPs in excess of 50 per cent of working capital limits can do so after receiving prior clearance from banks.

"The aggregate amount to be raised by issuance of CP by a corporate should not exceed the working capital (fund based) limit sanctioned to it by banks," the norms stated.

For FIs, the instrument can be issued within the overall umbrella limit set by the apex bank, which include other forms of borrowings like term money, term deposits, certificate of deposits and inter-corporate deposits. The RBI said the amount of CP issue should not exceed the net owned funds of the institution. In case of primary and sattelite dealers, the limit will be decided by their respective boards.

The central bank said the CP-holders should preferably rely on holding the instrument in demat form. "As regards the existing stock of CPs, the same can continue to be held in physical form or can be dematerialised, if both issuer and investors agree to it," the RBI norms said.

Foreign institutional investors (FIIs) holding CPs can do so within the 30 per cent limit set by RBI for investment in debt instruments.