Commercial Paper.

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What Is Commercial Paper ??

 Commercial paper is an unsecured, short-term debt instrument issued by a corporation, typically for the financing of Accounts Payable and inventories and meeting short-term liabilities. Maturities on commercial paper rarely range longer than 270 days. Commercial paper is usually issued at a Discount from face value and reflects prevailing market interest rates.
Commercial paper is a money-market security issued (sold) by large corporations to obtain funds to meet short-term debt obligations (for example, payroll) and is backed only by an issuing bank or company promise to pay the face amount on the maturity date specified on the note.
What is the use of commercial paper?
Commercial paper is an unsecured form of promissory note that pays a fixed rate of interest. It is typically issued by large banks or corporations to cover short-term receivables and meet short-term financial obligations, such as funding for a new project.
What are the types of commercial paper?
The UCC identifies four basic kinds of commercial paper: promissory notes, drafts, checks, and certificates of deposit. The most fundamental type of commercial paper is a promissory note, a written pledge to pay money. A promissory note is a two-party paper.
Who Can Issue Commercial Paper ??
– Companies
– Non-Banking Finance Companies (NBFCs)
– All India Financial Institutions (AIFIs)
– Other entities with a net worth of Rs. 100 Crore or higher viz.
– Co-operative societies / Unions
– Government entities
– Trusts
– Limited Liability Partnerships
– Any other body corporate having presence in India
– Any other entity specifically permitted by the Reserve Bank of India (RBI)

Which are the conditions to be fulfilled to issue Commercial Paper?

  • All fund based facility(ies) availed of from bank(s) and/or financial institutions should be classified as standard asset by the financing banks/institutions at the time of issue.
  • Issuers who have defaulted on a Commercial paper shall not be allowed to access the CP market for six months from the date of repayment of the defaulted obligation.

Who can invest in Commercial Paper?

All residents can invest in Commercial papers.

Advantages of Commercial Paper


A major benefit of commercial paper is that it does not need to be registered with the Securities & exchange Commission as long as it matures before nine months, or 270 days, making it a very cost-effective means of financing. Although maturities can go as long as 270 days before coming under the purview of the SEC, maturities for commercial paper average about 30 days, rarely reaching that threshold. The proceeds from this type of financing can only be used on current assets, or inventories, and are not allowed to be used on Fixed Asset such as a new plant, without SEC involvement.


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