Untitled-29

(^390) Financial Management
(d) The Company must obtain a PI rating from Credit Rating and
Information Services of India Ltd. which should not be more than 2
months old at the time of issue.
(e) The company must have Health Code No. 1 raising from the Companyís
brokers.
(f) The company must have got its shares listed on atleast one stock
exchange.
(ii) Minimum size of a CP issue is Rs. 25 lakhs and the face value of each CP
instrument should be Rs. 5 lakhs.
(iii) The maximum amount that can be issued by issue of CP will be 30% of the
fund-based working capital limit. Once the issue is placed in the market, the
fund-based working capital limit of the company will be correspondingly reduced.
(iv) The issuing company has to get the RBI permission every time it issues CP
and the RBI will operate a queue system to regulate the CP market.
(v) CP may be issued to any person or corporate bodies registered or incorporated
in India (including banks) as well as unincorporated bodies.
(vi) The issue of CP cannot be underwritten or coaccepted in any manner.
(vii) The paper being a usance promissory note, will be negotiable by endorsement
and deliveryí. The discount rate shall be determined by the free market.
Recently, RBI liberalised the terms of issue of CP to come into force retrospectively
from May 30, 1991. According to the liberalised terms, proposals by eligible companies
from the issue of CP would not require prior approval of the RBI. Such companies
would have to submit the proposals to the financing banking company which provided
working capital facility either as a sole banker or as a leader of the Consortium. The
Bank on being satisfied of the compliance of then norms would take the proposal on
record before the issue of CP.
In its attempt to boost up commercial paper market in the country the RBI further
relaxed rules in June, 1992. Thus, the minimum working capital limit required by a
company to issue CPs has been slashed to Rs. 5 crores from Rs. 10 crores. The
minimum rating required from CRISIL has been lowered to P 2 from P 1 while the
minimum rating needed from ICRA is now A 2 instead of A 1. Further the ceiling on the
aggregate amount which can be raised through CP has been raised to 75% of the
working capital from 30%. A closely held company has also been permitted to borrow
CPs provided all the criteria are met.
According to the RBIís monetary policy for the second half of 1994-95, the stand-by
facility for commercial paper (CP) has been abolished. As per the policy when CPs are
issued, banks will have to effect a pro rata reduction in the cash credit limit and it will no