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Commercial Papers (CP)

Commercial Paper widely known as CP was introduced in 1990. In the Corporate world, CP is used as a short term debt instrument. CP is generally issued by highly rated corporates borrowers to diversify their source of short term borrowings and provides an additional instrument to the investors with a freely negotiable interest.

As CP is a debt instrument the issuer Company is required to follow the requirement of issuing debt instrument like to engage dealer to get the CP rated by the Credit Rating Agency and bear the expenses for the same. In this digital era, the CP is issued in Dematerialized form. CP is also subject to stamp duty.

A Corporate unit can issue CP if it’s tangible net worth is not less than Rs.4 crores as per the latest audited balance sheet. It fund based working capital limit not less than Rs. 4 crores. It has obtained minimum credit rating from the approved credit rating agency for issuance of CP and such credit rating given to the corporate should not be old less than 2 month at the time of issue of the CP. The minimum current ratio of such corporate unit should not be less than 1.33:1 as per the latest audited balance sheet. The classification of the current assets and current liabilities are inconformity with the guideline issued by the Reserve bank of India from time to time.

CP is issued with maturity period from Seven days but less than One year. There is no provision of extension or grace period in maturity. If the maturity date falls on holiday then on immediately preceding next day the CP issuer will make payment to the CP holder. Every issue of CP including renewal will be treated as Fresh issue of the CP.

All you need to know about Commercial Papers (CP)

CP may be issued in multiple of Rs.5 lakhs. CP may be issued on the same date or in part on different date within the period of two weeks. When CP is issued on the different date the maturity of the CPs will be on the same date.  


When a corporate wants to issue CP such corporate will inform in the form of a request to its banker where there is consortium then lead bank of the consortium about the intention of issue of CP. The Banker will evaluate the application and on being satisfied the banker will give No Objection Certificate (NOC) to the issue of the CP and will earmark (Freez) the fund based working capital facilities of such corporate. In  other words corporate can issue CP  up to 100 per cent of the fund based working capital facilities and upon issue of the CP the banker will reduce the fund based working capital facilities by the amount for which the CPs are issued.

CP is issued in the form of usance promissory note (usance means the time period allowed to settle payment of the transaction for example 30 days usance from the date of Bill or bill of Lading or dispatch date means on or before the expiry of 30days from the specified date the payment of the transaction should be made).CP is a negotiable instrument by endorsement and delivery.


CP is issued at the discount to the face value which reflects current market interest rate. CP is redeemed at face value. CP is subject to Stamp duty.

Non Resident Indians (NRIs) can invest in CP but only on a non-repatriation basis and such CP shall not be transferable.

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Category Others, Other Articles by - CS M Pota