Commercial paper, Managerial Accounting

The CP introduced in the Indian financial market, for the recommendations of the Vaghul Committee has turn into a well-liked debt instrument of the corporate world. Commercial Paper is a debt instrument for short-term borrowing that enables highly rated corporate borrowers to vary their sources of short-term borrowings and gives an additional financial instrument to investors along with a freely negotiable interest rate. The maturity period ranges from three months to less than a year. As this is a short-term debt, the issuing company is needed to meet dealers' fees, rating agency fees and another relevant charge. CP is short-term unsecured promissory note issued through corporations along with high credit ratings.

Salient Features:

Eligibility Criteria: A company can concern CP only whether:

1) CPs tangible net worth is not less than Rs. 4 crore according to the latest audited balance sheet;

2) CPs fund based working capital limit is not less than Rs. 4 crore;

3) This has acquired the identified minimum credit rating for issuance of commercial paper from an approved credit rating agency. That credit rating must not be more than 2 months old at the time of issue of the commercial paper;

4) CPs borrowal account is classified by 'standard' through the financing bank; and

5) This has a minimum current ratio of 1.33:1 according to the latest audited balance sheet and the classification of current liabilities and assets are in conformity along with the Reserve Bank guidelines issued by time to time.

Posted Date: 4/9/2013 3:11:50 AM | Location : United States







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