COMMERCIAL PAPER Reasons of Non-Popularity In India Presented By: Baldeep Mann Team Leader (Punjab) RMP Infotec Private Limited Contact: 9815050398

INDIAN FINANCIAL SYSTEM

Financial Markets Money Market Capital Market Forex Market Credit Market.

MONEY MARKET & INSTRUMENTS OF MONEY MARKET Call Money Certificate of deposits Repurchase options/ ready forward (REPO or RF) Inter-bank participants certificates (IBPC’s) Treasury Bills Commercial Paper Commercial Bills Forward Rate Agreements (FRA’s)  

COMMERCIAL PAPER Commercial paper is a debt instrument issued by an organization to raise short-term funds to meet current expenditure needs.

ADVANTAGES OF C P Involves Less Documentation Diversification of Sources of Finance High Rate Of Return Unsecured Instrument High Liquidity

REGULATIONS OF CP MARKET Guidelines Issued by RBI for the Issue of Commercial Paper  

Source: www.rbi.org  

PROCEDURE, LIMIT, AMOUNT and TERMS of ISSUE OF CP Procedure of Issuing the Commercial Paper Who can issue CP Who Can Invest in CP

              Demat Procedure For CP

CP Issue Expenses Source: RBI Bulletins

PRICING SYSTYEM OF COMMERCIAL PAPER & FACTORS AFFECTING THE PRICING SYSTEM Formula- Face Value / (1+ Discount Rate * No. of days / 365) Factors- Inter-bank call rates Competing Money Market Investment Products Liquidity

INTERNATIONAL COMMERCIAL PAPER MARKET

Characteristics of CP: Comparative Analysis with Other Countries

13 Source: www.rbi.org.in  

RECENT TRENDS IN CP MARKET

OUTSTANDING AMOUNT OF CP AND RANGE OF DISCOUNT   Source: RBI Bulletins

Trends in CP Issuance by Manufacturing, Leasing & Finance Cos. and FIs. Source: “Paper Tricks”; The Economic Times; 16 Aug. 2006; P- 11.

FACTORS HAMPERING GROWTH OF CP MARKET Working capital limits fixed by banks Legal formalities Difference in stamp duty rates Its Physical form No reliable benchmark is available for Pricing of CP

REASONS OF NON-POPULARITY OF CP. Less Developed Money Market. Unsecured Instrument. Issued only by Highly Rated Companies. CP is a Short-Term Instrument. Minimum Investment is very High. CP is a bearer Instrument. Impersonal method of financing. Stock market is more developed than Money Market. Diversification in sources of investment for the public. Awareness in Laymen about CP

EXPECTED FUTURE INNOVATIONS IN CP MARKET Guaranteed Commercial Papers. Asset Backed Commercial Papers.

MONEY MARKET REGULATORY BODIES Discount and Finance House Of India Ltd.(DFHI) Securities Trading Corporation Of India Ltd. (STCI)

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