What changed
This is a consolidation of existing guidelines into one master circular, not a new policy. It reiterates that CP must be issued as a standalone product and banks/FIs are not obligated to provide standby facilities. Credit enhancement is allowed with specific conditions, including a higher rating for the guarantor.
What it means for you
Banks and FIs can now refer to a single document for all CP rules, reducing compliance confusion. The standalone requirement means CP cannot be bundled with other products, limiting cross-selling opportunities. The optional nature of standby facilities gives banks more flexibility but also requires careful credit assessment for any support provided.
What you must do
- Update internal CP issuance and investment policies to align with this master circular.
- Ensure any credit enhancement or standby facility for CP has explicit board approval and meets prudential norms.
- Verify that issuer companies have tangible net worth of at least Rs.4 crore and a standard asset classification.
- Review documentation for CP issues to include proper disclosures if a non-bank guarantor is involved.
Who it affects
Corporate borrowers issuing CP, Primary dealers and all-India financial institutions, Banks and FIs providing working capital or standby facilities, Investors in CP, including mutual funds and pension funds
What is the minimum net worth required for a company to issue CP?
The company must have a tangible net worth of at least Rs.4 crore as per the latest audited balance sheet.
Can banks be forced to provide standby facilities for CP issues?
No, it is not obligatory for banks or FIs to provide standby facilities. They may do so at their discretion with board approval and subject to prudential norms.
What are the conditions for a non-bank entity to provide a guarantee for CP credit enhancement?
The issuer must meet all eligibility criteria, the guarantor must have a credit rating at least one notch higher than the issuer, and the offer document must disclose the guarantor's net worth, existing guarantees, and invocation conditions.