Commercial Papers (CP), an unsecured money market

Solution

The Vaghul Committee (Working Group on the Money Market, 1987) recommended the introduction of Commercial Papers (CPs) to provide highly rated corporate borrowers with a source of short-term diversification. CPs were officially introduced in the Indian market in 1990.   CPs are unsecured promissory note; issued at a discount to face value. These are used by corporates to raise short term funds.   Under current RBI (Money Market Instruments) Directions, CPs can be issued for a minimum maturity period of 7 days and a maximum of up to one year from the date of issue. The CP should be credit rated with Minimum credit rating of A3. The issue has to be in dematerialized form and must be i ssued in denominations of Rs.5 lakh or multiples thereof . In case of a buyback offer of the CP, the buyback offer may not be made before 30 days from the date of issue.