Norms on commercial paper issuance eased

The Reserve Bank of India (RBI) on Thursday proposed to ease rules around issuance of commercial papers (CP), and allowed buybacks of these papers even as the central bank lowered the rating requirement of firms issuing these papers by one notch.
 
Commercial papers are short-term debt papers that mature within seven days to a year. In its draft guidelines, the central bank proposed the issuer of a CP can buy back the bonds. The buy-back can be in full or part and should be at prevailing market price. However, the buy-back offer, which has to be extended to all paper holders, cannot be made before 60 days of the issuance, RBI’s draft rules said.

 
Besides, RBI also widened the gamut of issuers who can issue the paper. Earlier, corporates, primary dealers (PDs) and the All-India Financial Institutions (FIs) were eligible to issue CP. The revised draft said apart from the above, any institution that has a minimum networth of Rs 100 crore or higher can issue these papers, too.  According to the draft guidelines, the commercial papers have to be issued for a minimum value of Rs 5 lakh and multiples of Rs 1 lakh thereof. However, the extant rule is that the minimum value of issuances should be Rs 5 lakh and multiples of Rs 5 lakh thereof.  Also, the RBI draft said companies with minimum rating of ‘A3’ can issue the papers. Earlier, the minimum rating allowed was A2.