RBI releases revised draft directions on Commercial Papers (CPs) for Public Comments
Date : Feb 02, 2017 Commercial Papers (CPs) were introduced to enable corporate borrowers to diversify their sources of short-term borrowings as also to provide an additional instrument to investors. The guidelines prescribed for issue of CPs have been amended from time to time and the last review was done in October 2012. To broaden access, strengthen disclosure requirements by issuers of CPs, review the role of issuing and paying agents (IPAs) and put in place an information dissemination mechanism, the existing directions on CPs have been reviewed. The revised draft directions are placed on the Bank’s website for public comments.
Comments on the draft directions may be sent email by Friday, February 24, 2017. The final directions will be issued after taking into account the feedback received.
Jose J. Kattoor
Chief General Manager
Press Release: 2016-2017/2072
RESERVE BANK OF INDIA
FINANCIAL MARKETS REGULATION DEPARTMENT
1st FLOOR, CENTRAL OFFICE FORT
MUMBAI 400 001
FMRD.DIRD./CGM(TRS) – 2017 dated February 2, 2017
Reserve Bank Commercial Paper Directions, 2017
Whereas the Reserve Bank of India, in exercise of the powers conferred by Sections 45J, 45K, 45L of the Reserve Bank of India Act, 1934, and of all the powers enabling it in this behalf, notified the Non-Banking Companies (Acceptance of Deposits through Commercial Paper) Directions 1989 vide Notification No.IECD.1/87(CP)-89/90 dated December 11, 1989;
And whereas the said directions having been amended from time to time vide Notification No.IECD.14/08.15.01/96-97 dated September 6, 1996; Notification No.IECD.21/08.15.01/97-98 dated June 17, 1998, Notification No IECD 3/08.15.01/2000-2001 dated October 10, 2000 and IDMD.PCD. 1284 /14.01.02/2012-13 dated October 16, 2012 respectively;
And whereas Section 45W of the Reserve Bank of India Act provides that the Bank may, in public interest, or to regulate the financial system of the country to its advantage, determine the policy relating to interest rates or interest rate products and give directions in that behalf to all agencies or any of them, dealing in securities, money market instruments, foreign exchange, derivatives, or other instruments of like nature as the Bank may specify from time to time;
And whereas Commercial Paper is a ‘money market instrument’ for the purposes of Section 45W of the Reserve Bank of India Act;
Now therefore, in exercise of the powers conferred under sections 45J, 45K, 45L and 45W, and in supercession of the Notifications referred hereinabove, and all other instructions issued in this behalf, on the subject, the Reserve Bank of India, having considered it necessary in the public interest and being satisfied that for the purpose of enabling the Bank to regulate the credit and financial system to the advantage of the country, hereby issues the following directions:
1. Short Title and Commencement
These directions shall be called the Reserve Bank Commercial Paper Directions 2017 and shall come into force on the date of their publication.
For the purpose of these directions, unless the context otherwise requires:
3. Eligible Issuers:
a. Companies and All India Financial Institutions (AIFIs) subject to following conditions:
b. Standalone Primary Dealers.
c. Other entities with a net worth of ₹ 100 crore or higher subject to conditions under 3 (a)(i) and 3 (a)(ii) above.
d. Any other entity specifically permitted by the Reserve Bank of India (RBI).
4. Eligible Investors:
a. All residents, and non-residents permitted to invest in CPs under Foreign Exchange Management Act (FEMA), 1999 are eligible; however, no person can invest in CPs issued by related parties.
b. Investment by regulated financial sector entities will be subject to such conditions as the concerned regulator may impose.
5. Form of the instrument, mode of issuance, rating and documentation procedures
5.2 Rating Requirement
a. Eligible issuers shall obtain credit rating for issuance of CPs from at least two CRAs registered with SEBI and should adopt the lower of the two ratings.
b. The minimum credit rating for a CP shall be ‘A3’ as per rating symbol and definition prescribed by SEBI
c. CRAs shall take approval from RBI for the purpose of rating CPs.
5.3 Documentation Procedures
Issuers, investors and Issuing and Paying Agents (IPAs) shall follow the standard procedures and documentation prescribed by Fixed Income Money Market and Derivatives Association of India (FIMMDA) as ‘Operational Guidelines on CPs’.
6. Secondary market trading and settlement of CP
7. Buyback of CP
a. The buyback of CP, in full or part, shall be at prevailing market price.
b. The buyback offer should be extended to all investors in the CP issue.
c. The buyback offer may not be made before 60 days from the date of issue.
d. CPs bought back shall stand extinguished.
8. Duties and Obligations
The duties and obligations of the Issuer, Issuing and Paying Agent (IPA), Credit Rating Agency (CRA) and Arrangers are set out below:
II. Issuing and Paying Agent
III. Credit Rating Agency
9. Non-applicability of Certain Other Directions
Nothing contained in the Non-Banking Financial Companies Acceptance of Public Deposits (Reserve Bank) Directions, 1998 shall apply to the raising of funds by issuance of CP, by any NBFC in accordance with these directions.
(T. Rabi Sankar)
Chief General Manager
Minimum disclosure in the Offer Document
We have a valid IPA agreement with the ____________________________________
(Name of Issuing Company/Institution)
2. We have verified the documents viz., board resolution and certificate issued by Credit Rating Agency submitted by [Name of the Issuing Company/Institution] and certify that the documents are in order. Certified copies of original documents are held in our custody.
3.*We also hereby certify that the signatures of the executants of the attached Commercial Paper bearing Sr. No. ______________ dated _______________ for Rs._______________ (Rupees ____________________________________) (in words) tally with the specimen signatures filed by [Name of the issuing Company/Institution].
(Name and address of Issuing and Paying Agent)
* (Applicable to Commercial Paper in physical form/Strike out if not applicable)