An unsecured short-term money-market instrument, issued in the form of a promissory note at a discount to face value, used by companies and financial institutions to fund short-term working capital needs.
Abbreviated CP.
The mechanics
- Tenor runs from a minimum of seven days to a maximum of one year from the date of issue.
- Issued at a discount to face value and redeemed at par; the discount is the return. CP does not pay a coupon.
- Denomination is a minimum of ₹5 lakh, in multiples of ₹5 lakh thereafter.
- Held in dematerialised form and traded over the counter, with reporting to the trade repository.
- Unsecured. There is no charge on assets behind it.
Issuance is governed by the RBI’s Commercial Paper and Non-Convertible Debentures (of original or initial maturity upto one year) Directions, 2024, effective 1 April 2024, which also set out who may issue — companies, NBFCs, InvITs and REITs, all-India financial institutions, and bodies corporate, co-operative societies and LLPs meeting a minimum net worth of ₹100 crore — along with the eligibility conditions and the reporting requirements.
The rating
CP must carry a credit rating from a SEBI-registered credit rating agency, and the RBI’s Directions set the minimum at A3 on the short-term scale.
That scale is separate from the long-term scale. It runs A1, A2, A3, A4, then D, with a + modifier available on each of A1 to A4. A1+ is the strongest grade and is where most active CP issuance sits, because money-market investors are generally mandated at the top of the scale.
Short-term ratings do not carry a rating outlook — the instrument matures inside the horizon an outlook would describe.
Why it matters when reading a rating document
A borrower will frequently hold a long-term rating on its bank facilities and a short-term rating covering CP and short-term facilities at the same time. These are separate ratings on separate objects, and there is no single company rating that subsumes them.
CP also carries a specific refinancing risk that shows up in the liquidity paragraph of a rationale: it is short paper that generally has to be rolled, so the agency will usually assess the availability of backup bank lines against the outstanding CP programme. A downgrade below the market’s tolerance can close the roll abruptly, which is why short-term rating movement is watched more closely than its narrow scale suggests.
Related
- Non-convertible debenture — the long-term instrument alongside it
- Rating outlook — and why short-term ratings do not carry one
- Bank loan rating — the other rating a CP issuer usually holds
- Credit rating agencies in India — the two scales
- Glossary index