India: Commercial Paper Directions: Amendments Introduce Enhanced Disclosures

Last Updated: 1 September 2017
Article by Manisha Shroff, Madhuparna Dasgupta and Meenakshi Kurpad

Most Read Contributor in India, October 2017

The Reserve Bank of India (RBI) introduced the Commercial Paper Directions, 2017 (Directions) on 10 August 2017. The primary purpose of the Directions is to regulate commercial papers (CPs) accepted as deposits by non-banking companies. The Directions supersede previous directions such as the Non-Banking Companies (Acceptance of deposits through Commercial Paper) Directions 1989, which had been amended in 1996, 1998, 2000 and further in 2012 (2012 Guidelines).

Section 45U of the Reserve Bank of India Act, 1934 (Act) includes 'Commercial Paper' as a money market instrument and the Directions define it as an unsecured money market instrument issued in the form of a promissory note, where the tenor of such commercial paper is between 7 (seven) days to 1(one) year.

Widening the gamut of Eligible Issuers

  • The terms 'Non-Banking Finance Companies' (NBFCs) and 'All India Financial Institutions' (AIFIs) have been introduced in the Directions. Earlier, AIFIs were defined as financial institutions (FIs) and NBFCs were defined within the realm of primary dealers (PD) which has now been expanded.
  • Under the Directions, the sole eligibility requirement for companies, including NBFCs and AIFIs, to issue CPs is that any fund-based facility availed from bank(s) and/or financial institutions is classified as a standard asset by all financing banks/institutions at the time of issue. The Directions dispense with the earlier minimum net-worth criteria and requirement to have working capital limits, making the process far simpler for companies and NBFCs. The removal of net worth criteria for companies is also expected to enable the small and medium sized corporate sector to access the commercial paper market easily for raising funds.
  • The Directions have also broadened the scope of eligible issuers by bringing in co-operative societies, unions, government entities, trusts and LLPs or any other body corporates having presence in India and having a net-worth of INR 100 crores or higher, subject to the aforementioned 'standard asset' classification requirement. Further, the Directions have also introduced the concept of special permission from the RBI for issuance of CPs by entities not otherwise covered under the Directions.

Form of CP

  • The form in which a CP may be issued remains largely the same as the previous regulations. The CP is to be issued as a promissory note in the format given in Annex I of the Directions and must be held in dematerialised form through any Securities and Exchange Board of India (SEBI) approved depository.
  • The CP shall be issued in minimum denomination of INR 5 lakhs (or multiples thereof) and shall be issued at a discount to the face value.
  • Underwriting and co-acceptance of CPs or provision of call or put options on the CPs are not permitted under the Directions.
  • Additional conditions which were imposed under the 2012 Guidelines relating to the issue of CP such as aggregate amount of CP that can be issued, flexibility by banks and financial institutions to fix working capital limits, issue of CP by a financial institution (FI) to be within the overall umbrella limit as per the Master Circular on Resource Raising Norms for FIs and the time period within which the total CP must be issued have been done away with.

Credit Enhancement mechanisms

  • While the requirement for CPs to be issued as a stand-alone product continues, the Directions provide that banks and FIs may, based on their commercial judgement, choose to provide stand-by assistance/credit, back-stop facility etc. by way of credit enhancement for a CP issue.
  • The conditions for credit-enhancing the CPs by way of issue of corporate guarantee/guarantee by non-bank entities remain the same. Non-bank entities (including corporates) may provide unconditional and irrevocable guarantees for credit-enhancing the CPs, subject to proper disclosures in the offer document regarding the net worth of the guarantor company, the names of the companies to which the guarantor has issued similar guarantees, the extent of the guarantees offered and the conditions under which the guarantee can be invoked.

Disclosure of end use

  • The exact end use is required to be disclosed in the offer document at the time of issue of the CP. This is a new addition in the Directions.

Eligible Investors

  • The Directions have broadened the scope of eligible investors by allowing all residents and non-residents to invest in CPs subject to compliance with the Foreign Exchange Management Act 1999 (FEMA).
  • However, investment in CPs issued by related parties in the primary or secondary markets cannot be made.
  • Further, investment by regulated financial sector entities are subject to their respective regulations.

Rating Requirements

  • The requirement to obtain a credit rating is now applicable to eligible issuers whose total CP issuance in a calendar year is INR 1000 crore or more. Credit rating must be obtained from a minimum of two credit rating agencies (CRAs) registered with the SEBI, and the lower of the two ratings must be adopted. If the ratings are the same, then the issuance shall be of the lower of the two amounts. It must be noted that this requirement to obtain two ratings is applicable from 1 October 2017.
  • The minimum credit rating is A3.


  • Over the counter (OTC) trades may now be settled through the clearing corporation of any recognised stock exchange or any other mechanism approved by the RBI.

Buyback of Commercial Paper

  • Issuers are allowed to buyback CPs at the prevailing market price, subject to the buyback offer being extended to all investors in the CP where the terms of the buyback are identical to all issuers. The buyback offer may not be made before 30 days before the date of issue. Once the CP is bought back, it shall be extinguished.
  • The requirement of approval from the board and intimation to the issuing and paying agent (IPA) has been done away with.

Offer Document

The Directions further stipulate certain minimum disclosure requirements under the offer document for the CPs in Annex II. These include disclosure of details of outstanding CPs and other debt instruments such as date of issuance, issue amount, date of maturity, amount outstanding, credit rating, names of CRA and IPA. The offer document must also disclose details of default of CPs or any other borrowings in the past three years, details of current tranche including amount, current credit rating, name of the IPA and CRA (along with its validity period). A summary of the last three years audited financials, material litigation and regulatory strictures must be attached. The end-use of funds must also be disclosed.

Duties and Obligations

The Directions lay down the various duties and obligations expected of an Issuer of CPs as well the Issuing and Paying Agent (IPA) and Credit Rating Agency (CRA), which are briefly described as follows:


The Directions have laid down specific duties and obligations for an Issuer of CP which include appointment of an IPA, compliance with relevant requirements and furnishing a declaration of such compliance to the IPA, ensuring that proceeds from the issue of CP are towards the declared end uses, furnishing a board resolution of the company authorising the issuance of the CP to the IPA, keeping the banks and financial institutions informed of outstanding fund and non-fund facilities at the end of the month in which a CP was issued, arrangement of a demat account to credit the proceeds of the CP, enhanced information obligations to IRA and the credit rating agencies including routing all default details, delay, subscriptions, redemption, buybacks and payments and submitting a certificate from the CEO or CFO of the issuer that the proceeds of the CP are being used for the relevant end use.

Disclosures relating to default must be communicated on an immediate basis. The issuer must inform the CRA and IPA of any default or delay with respect to payments related to the CP on the same day. It must be noted that an issuer who has defaulted on a CP shall not be allowed to access the market for issue of CPs for a period of six months from the date of repayment of such defaulted obligation.


IPAs are now required to ensure the borrower is authorised to raise money by way of issuance of CPs. Under the 2012 Guidelines, the IPA was required to ensure a minimum credit rating of the CP, hold certified copies in their custody and report full details of defaults and buybacks to the RBI via email in the format specified. The Directions have sought to digitise the issuance of CPs by mandating IPAs to make available the IPA certificate in electronic form and report details of issuances, buyback and defaults in CPs on the F-TRAC platform. Until CCIL advises full operationalisation of F-TRAC, the current reporting arrangements shall continue.


The Directions have simplified the obligations of the CRAs. CRAs continue to be required to continuously monitor the assigned rating and disseminate revisions (if any) via public announcements on the date of change in rating.


The underlying theme of the new Directions is focused on enhanced disclosure measures, while at the same time attempted to ease the rigid eligibility conditions which previously restricted the issue of commercial paper. The broadened disclosure measures include reporting of defaults on all fund and non-fund based facilities to banks, thereby not limiting it to merely commercial paper. The Directions have introduced disclosures that are to be made in the offer documents. It broadens investor protection by mandating multiple credit ratings for the issuance of CP. Investors can now make better informed decisions before investing in CPs that are issued. The Directions also widens the scope of issue of commercial paper by allowing more entities to be eligible as issuers as well investors.

The content of this document do not necessarily reflect the views/position of Khaitan & Co but remain solely those of the author(s). For any further queries or follow up please contact Khaitan & Co at

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

In association with
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.


Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.


Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.


A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.


This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.


If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.


From time to time Mondaq may send you emails promoting Mondaq services including new services. You may opt out of receiving such emails by clicking below.

*** If you do not wish to receive any future announcements of services offered by Mondaq you may opt out by clicking here .


This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at and we will use commercially reasonable efforts to determine and correct the problem promptly.