Framework of Indian CP Market Homework Help

Framework of Indian CP Market

The CPs emerged as sources of short term financing in the early nineties They are regulated by the RBI. The main elements of the present framework are given below.

CPs can be issued for periods ranging between 15 days and one year. Renewal of CPs is treated a, fresh issue.

The minimum size of an issue is Rs 25 lakh and the minimum unit of subscription is Rs 5 lakh.

The maximum amount that a company can raise of CPs is 100 per cent of the working capital limit.

A company can issue CPs only if it has a minimum tangible net worth of Rs 4 crore, a fund based working limit of Rs 4 crore or more, at a credit rating of P2 (Crisil), A2 (Icra), PR- 2 (Care) and D-2 (Duff & Phelps) and its borrowal account is classified as standard asset.

The CPs should be issued in the form of usance promissory notes, negotiable by endorsee merit and delivery at a discount rare freely determined by the issuer. The rare of discount also includes the cost of stamp duty (0.25 to 0.5 per cent), rating charges (o.1 to 0.2 per cent), dealing bank and stand by facility (0.25 per cent).

The participants investors in CPs can be corporate bodies, hanks, mutual funds, UTI, LIC, GIC, NRis on non-repatriation basis. The Discount and Finance House of India (DFHI) also participates by quoting its bid and offer prices.

The holder of the CPs would present them for payment to the issuer on maturity.

Effective Cost Interest Yield

As the CPs are issued at discount and redeemed at it face value, their effective pre tax cost interest yield.

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