Clear Cp Proposals In 7 Days, Rbi Tells Banks

Earlier, the seven-day stipulation did not exist and banks inordinately delayed the clearing process.

Of late banks were not allowing corporates to issue commercial papers as they feared that their interest income would fall.

CPs attract a lower rate of interest vis-a-vis cash credit of loans.

The central bank has in the recently-issued detailed guidelines also indicated that the ``question of denial of permission to the borrower by the concerned banking company to issue commercial paper shall not arise as long as the eligibility criteria is met by the corporates.

These measures have been taken as the corporates have on several earlier occassions faced delays in issuing commercial papers because the banks have not been issuing no objection certificates (NOC) to them on time.

 

In case a corporate has to place CPs with banks outside its consortium, it has get an NOC from the lead bank. This was not being issued by the bank.

In case the commercial papers were proposed to be placed with the consortium itself, the banks would delay the process as they would lose interest income.

With the new policy guidelines allowing corporates to issue commercaial paper up to 100 per cent of their maximum permissable bank finance (MPBF), there has been an increase in activity in the commercial paper market.

CPs have now been freed from the cash credit limits.

A number of large corporates like Voltas, Grasim, Bombay Dyeing, Asian Paints, Century Textiles and L&T are getting their instruments rated by various rating agencies. The rates in the commercial paper market have also fallen at levels between 11.75 per cent and 12 per cent from earlier levels of 14 per cent.

In the case of borrowers with assessed maximum permissable bank finance of Rs 20 crore or above, the cash credit component has been restricted to 25 per cent of the MPBF and the balance 75 per cent is in the form of loan component.

In the case of borrowers with assessed MPBF of Rs 10 crore or above, but less than Rs 20 crore, the cash credit component has been reduced to 40 per cent from 60 per cent.