Category Archives: General Awareness

Commercial Paper (CP) – Banking Awareness For Bank Exams 2014

Commercial Paper (CP): Commercial Paper (CP) is an unsecured money market instrument issued in the form of a promissory note.

Introduced in India: Commercial Paper in India is a new addition to short-term instruments in Indian Money market since 1990 onward.

The introduction of Commercial paper as the short-term monetary instrument was the beginning of a reform in Indian Money market on the background of trend of Liberalization which began in the world economy during 1985 to 1990.

Purpose to introduce Commercial Paper:
It was introduced in India in 1990 with a view to enabling highly rated corporate borrowers to diversify their sources of short-term borrowings and to provide an additional instrument to investors.

Subsequently, primary dealers and all-India financial institutions were also permitted to issue CP to enable them to meet their short-term funding requirements for their operations.

Issuers of Commercial Paper:
The issuers of Commercial papers in Indian money market are broadly classified into:
i. Leasing and Finance Companies
ii. Manufacturing companies
iii. Financial Institutions

During the decade of 2000-01 to 2010-11, Leasing and finance companies had the average share of 70% of total issue of Commercial papers; while Manufacturing companies and Financial institutions had the average share of 15% each.

Whether all the corporate would automatically be eligible to issue CP?
No. A corporate would be eligible to issue CP provided –
i. the tangible net worth of the company, as per the latest audited balance sheet, is not less than Rs. 4 crore
ii.. company has been sanctioned working capital limit by bank/s or all-India financial institution/s; and
iii. the borrowable account of the company is classified as a Standard Asset by the financing bank/s/ institution/s.

Is there any rating requirement for issuance of CP? And if so, what is the rating requirement?
Yes. All eligible participants shall obtain the credit rating for issuance of Commercial Paper either from:
i. Credit Rating Information Services of India Ltd. (CRISIL) or
ii. Investment Information and Credit Rating Agency of India Ltd. (ICRA) or
iii. Credit Analysis and Research Ltd. (CARE) or
iv. FITCH Ratings India Pvt. Ltd. or
v. Such other credit rating agency (CRA) as may be specified by the Reserve Bank of India from time to time, for the purpose.

NOTE:-  1. The minimum credit rating shall be A-2 [As per rating symbol and definition prescribed by Securities and Exchange Board of India (SEBI)].
2. The issuers shall ensure at the time of issuance of CP that the rating so obtained is current and has not fallen due for review.

Minimum and maximum period of maturity prescribed for CP:
CP can be issued for maturities between a minimum of 7 days and a maximum of up to 1 year from the date of issue.

However, the maturity date of the CP should not go beyond the date up to which the credit rating of the issuer is valid.

In what denominations a CP that can be issued:
CP can be issued in denominations of Rs.5 lakh or multiples thereof.

How long can the CP issue remain open?
The total amount of CP proposed to be issued should be raised within a period of two weeks from the date on which the issuer opens the issue for subscription.

CP can be issued on different dates by the same issuer:
CP may be issued on a single date or in parts on different dates provided that in the latter case, each CP shall have the same maturity date. Further, every issue of CP, including renewal, shall be treated as a fresh issue.

Who can act as Issuing and Paying Agent (IPA):
Only a scheduled bank can act as an IPA for issuance of CP.

Who can invest in CP:
Individuals, banking companies, other corporate bodies (registered or incorporated in India) and unincorporated bodies, Non-Resident Indians (NRIs) and Foreign Institutional Investors (FIIs) etc. can invest in CPs.

However, investment by FIIs would be within the limits set for them by Securities and Exchange Board of India (SEBI) from time-to-time.

CP can be held in Dematerialized (Demat) form:
CP can be issued either in the form of a promissory note (Schedule I given in the Master Circular-Guidelines for Issue of Commercial Paper dated July 1, 2011 and updated from time –to-time) or in a dematerialised form through any of the depositories approved by and registered with SEBI. Banks, FIs and PDs can hold CP only in dematerialised form.

IMF: 2014-15 India’s Economic Growth Is 5.4 %

International Monetary Fund (IMF) Announced Annual Report of India’s economic growth for 2014-15 will be 5.4 percent

International Monetary Fund (IMF) on 20 February 2014 released its annual report on the state of the Indian economy and projected that India’s economic growth for 2014-15 will be 5.4 percent. In its release it said that India has restored macroeconomic and financial stability but structural impediments to growth and persistently high inflation is the major areas of concern. It has also suggested India to strengthen its inflation management policies and do away with supply bottlenecks for better GDP.

In its forecast, IMF (multilateral agency) said that inflation driven food prices seems to remain near double digits in 2014-15. It also said that the tight monetary policy would slow the growth recovery. In its forecast for the fiscal year 2013-14, it projected that India’s growth will be 4.6 percent and will pick up to 5.4 percent in 2014-15 at factor cost. These projections of India were a conclusion of its annual discussions with India.

India’s National Food Security Act has been described by IMF as landmark legislation which will ensure that a majority of population of the country will have access to adequate quantities of food at affordable prices. IMF also said that the Consumer Price Index (CPI) could push up due to weaker rupees and ongoing energy price increases.

To tackle price rise, IMF has asked the high Inflation countries of G20 nations like India to strengthen their fiscal and monetary policy framework. For G20 countries, IMF has also asked to better their supply infrastructure, which will help in doing away bottlenecks to achieve faster growth poverty reduction and job creation.

The G20 leaders’ meet will start in Sydney on 22 February 2014.

Earlier on 17 February 2014, the Union Finance Minister of India, P Chidambaram in his interim budget projected that the economy will pick up and the objective of 6 percent growth is doable in the fiscal year 2014-15. RBI appointed committee has also suggested focus of the central bank should be towards CPI inflation and its recommendation it has asked to bring down the CPI inflation to 8 percent in 2014-15 and to 6 percent by 2016.

About the International Monetary Fund (IMF) :
The International Monetary Fund (IMF) is an organization of 188 countries and is working to foster global monetary cooperation, secure financial stability, facilitate international trade, promote high employment and sustainable economic growth, and reduce poverty around the world. It is headquartered in Washington, US. The IMF has played a part in shaping the global economy since the end of World War II.

Functions and Objectives of G 20 Group

Functions and Objectives of G 20 Group

The Group of Twenty Finance Ministers and Central Bank Governors (also known as the G-20, G20, and Group of Twenty) is a group of finance ministers and central bank governors from 20 major economies: 19 countries plus the European Union, which is represented by the President of the European Council and by the European Central Bank

Australia, which is the host of the G-20, wants the ministers to agree to a substantial plan to achieve collective global goal of promoting growth and lifting economies which are still reeling under the impact of slowdown.

Indian finance minister P Chidambaram who also reached Sydney will also pitch for greater transparency in the US Fed’s tapering operations, expeditious reforms of IMF and automatic sharing of tax information.

Besides the Minister, the Indian delegation at the G20 ministerial comprises Reserve Bank Governor Raghuram Rajan and senior officials of the Finance Ministry including Economic Affairs Secretary Arvind Mayaram.

This event is the first major G20 meeting under Australia’s presidency in 2014. Australia will also host G20 Leaders Summit which will be held on15 and 16 November in Brisbane, Queensland which will chair byTony Abbott, Prime Minister of Australia.

About G-20

The Group of Twenty Finance Ministers and Central Bank Governors (also known as the G-20, G20, and Group of Twenty) is a group of finance ministers and central bank governors from 20 major economies: 19 countries plus the European Union, which is represented by the President of the European Council and by the European Central Bank.

The G-20 was proposed by former Canadian Prime Minister Paul Martin as a forum for cooperation and consultation on matters pertaining to the international financial system.

The group was formally inaugurated in September 1999, and held its first meeting in December 1999.

G-20 members represent around:
1. 85 per cent of global gross domestic product