Fund Raising : Debt Funding other than Bank Finance - Commercial Paper, Deposits, Debentures, ECB

Commercial Paper - unsecured and cost effective way of raising short term funds for corporates having a good credit rating

1. Commercial Paper (CP) is an unsecured money market instrument issued in the form of a promissory note. CP as a privately placed instrument, 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.

2. CP can be issued for maturities between a minimum of 15 days and a maximum upto one year from the date of issue.

3. The minimum credit rating shall be P-2 of CRISIL or such equivalent rating by other agencies.

4. CP can be issued in denominations of Rs.5 lakh or multiples thereof. Amount invested by single investor should not be less than Rs.5 lakh (face value).

5. An FI can issue CP within the overall umbrella limit fixed by the RBI i.e., issue of CP together with other instruments viz., term money borrowings, term deposits, certificates of deposit and inter-corporate deposits should not exceed 100 per cent of its net owned funds, as per the latest audited balance sheet.

6. CP will be issued at a discount to face value as may be determined by the issuer.

7. The initial investor in CP shall pay the discounted value of the CP by means of a crossed account payee cheque to the account of the issuer through IPA. On maturity of CP, when the CP is held in physical form, the holder of the CP shall present the
instrument for payment to the issuer through the IPA.Issuing and Paying Agent (IPA)

8. Disclosure In Financials:
---> Shown Under Current Liabilities
----> Interest: Total Interest cost shall be taken as pre paid interest and same shall be charged to Profit and Loss account.

CPs guidelines.
1. Cps Should be in Dmat form with NSDL\CDSL
2.Can now be issued as
-Standalone Facility (means without approval from Consortium Bankers)
-Against Working Capital Requirements
3.Eligibility Criteria to issue CPs
a.Tangible NW not less than 4.00cr
b.should have Working capital limits sanctioned by Banks\FI
c.The borrower account should be classified as Standard Asset
d.Should have valid credit rating from ICRA\CRISIL\FITCH\CARE
e.The rating should be current & not due for renewal at the time & during issue
f.Borrowing should not exceed the rating amount or maximum amount authorized
by BOD by way of resolution

4.Who Can Act as IPA(Issuing & Paying Agent)
Any Scheduled Bank can act as IPA
5.General Guidelines
CP will be issues at discount value
No CP Issue can be underwritten
Period not <15> one year 
Minimum Denomination - 5,00,000.00 & multiples thereof(each ofFV 5.00L as1 unit)

6.Breif Process
Approach IPA, enter into IPA agreement & it should stamped as per stamp duty law
Issuer should have agreement with Depository(NSDLis alloting ISINs for Cps)
Issuer can get ISIN (created based on maturity date)by submitting Letter of Intent in the format prescribed by NSDL & it is same for whole CP programme. ISIN number should be known to IPA through Issuer \Registrar
As per RBI requirement the entire CP Prog should completed within 2 weeks from date of commencement of issue.

IPA Should open 3 accounts one is CP - Account for crediting the funds second CP- Allotment account & thirdly CP Redemption Account.
Upon the instructions of the Issuer, Registrar will credit the Cp units to CP Allotment A/C .
Upon Redemptin all investors transfer their Dmat Cps to CP - Redemption a\c with written instruction to IPA to pay the amount. Subject to availability of funds IPA settles the CP Account & advice the Registrar to cancel the Dmat CP as a Debit Corporate action..
7.List of details submitted to IPA
Original Rating letter (one time).
Jumbo CP\Demand Promissory Note with duly stamped.
Deal Confirmation signed by both parties(BSCPL & Bank)
Confirmation to eligibility norms prescribed by RBI (with supporting Copy of Board
resolutions, copy of Latest audited B\S & rating letter).
CP Placement Deal (Value date)i.e.Request letter.
The docs submitted to RBI also should be through IPA only.
ISIN Number from NSDL.
Board Resolutions (293(1)(a),293(1)(d), & for issue of Cps)
8. Docs to NSDL
Master file creation form(company details, CP details & IPA details)
Coporate action form for CPs(regarding fell details of CPs)
Letter of intent for ISIN No.
9.Docs to Bank
Undertaking that total borrowing is within the limits.
Letter of Offer for CPs
Deal Confirmation \Contract Note.
RTGS request.

Acceptance of Deposits by companies under new companies act 2013

“Eligible Company” means a public company as referred to in sub-section (1) of section 76, having a net worth of not less than Rs. 100 Crores or a turnover of not less than Rs. 500 Crores and which has obtained the prior consent of the company in general meeting by means of a special resolution and also filed the said resolution with the Registrar of Companies before making any invitation to the Public for acceptance of deposits.
Provided that an eligible company, which is accepting deposits within the limits specified under clause (c) of sub-section (1) of section 180, may accept deposits by means of an ordinary resolution;
A. From members
  • No Eligible company shall accept or renew any deposit from its members, if the amount of such deposit together with the amount of deposits outstanding as on the date of acceptance or renewal of such deposits from members exceeds 10% of the aggregate of the paid-up share capital and free reserves of the company and
  • No other company shall accept or renew any deposits from its members if the amount of such deposits together with the amount of other deposits outstanding as on the date of acceptance or renewal of such deposits exceeds 25% of the aggregate of the paid-up share capital and free reserves of the company.
B. From public
  • No eligible company shall accept or renew any deposit from public, if the amount of such deposit other than the deposit received from members, together with the amount of deposits outstanding on the date of acceptance or renewal exceeds 25% of aggregate of the paid-up share capital and free reserves of the company.
  • No Government company eligible to accept deposits under section 76 shall accept or renew any deposit, if the amount of such deposits together with the amount of other deposits outstanding as on the date of acceptance or renewal exceeds 35% of the paid-up share capital and free reserves of the company.
o   Resolution to be passed by company in general meeting.
o   Rules as may be framed by RBI to be complied with.
o   Circular to be issued to members showing financial position of the company, the credit rating obtained, details of outstanding deposits, if any, and other particulars as given below.
o   Deposit Repayment Reserve Account to be opened with a scheduled bank and atleast 15% of amount of deposits maturing during the current and next financial year to be deposited in the account. This account cannot be used for any other purpose.
o   Deposit insurance to be provided in the manner prescribed below:
ü  Every company referred to in sub-section (2) of section 73 and every other eligible company inviting deposits shall enter into a contract for providing deposit insurance at least thirty days before the issue of circular or advertisement or at least thirty days before the date of renewal, as the case may be
ü  The deposit insurance contract shall specifically provide that in case the company defaults in repayment of principal amount and interest thereon, the depositor shall be entitled to the repayment of principal amount of deposits and the interest thereon by the insurer up to the aggregate monetary ceiling as specified in the contract
ü  In the case of any deposit and interest not exceeding twenty thousand rupees, the deposit insurance contract shall provide for payment of the full amount of the deposit and interest and in the case of any deposit and the interest thereon in excess of twenty thousand rupees, the deposit insurance contract shall provide for payment of an amount not less than twenty thousand rupees for each depositor
ü  The amount of insurance premium paid on the insurance of such deposits shall be borne by the company itself and shall not be recovered from the depositors
ü  If any default is made by the company in complying with the terms and conditions of the deposit insurance contract which makes the insurance cover ineffective, the company shall either rectify the default immediately or enter into a fresh contract within thirty days and in case of non-compliance, the amount of deposits covered under the deposit insurance contract and interest payable thereon shall be repaid within the next fifteen days and if such a company does not repay the amount of deposits within said fifteen days it shall pay fifteen per cent interest per annum for the period of delay and shall be treated as having defaulted and shall be liable to be punished in accordance with the provisions of the Act.
o   Certificate to be provided regarding absence of any default by the company in repayment of deposit or interest thereon, either before or after the commencement of this Act.
o   Repayment of deposit and interest may also be secured by creation of charge on the assets and property of the company in compliance with rules in this regard.
o   Deposits which are unsecured or partially secured shall be so mentioned in all documents related to invitation or acceptance of deposits.
o   Credit rating should be obtained for accepting deposits from public
o   Every deposit accepted by a company under this section shall be repaid with interest in accordance with the terms and conditions of the agreement entered between the company and depositor.
o   In case of failure of company to repay deposits or interest thereon, the depositors can approach the Tribunal to obtain necessary orders for the company to make the payment or for any loss or damage incurred


Debenture Redemption Investment is to be made before 30th April @15% of debentures to be redeemed up to 31st March of next year.

Every company required to create/maintain DRR shall on or before the 30th April of each year, deposit or invest, as the case may be, a sum which shall not be less than fifteen percent of the amount of its debentures maturing during the year ending on the 31st day of March next year in any one or more of the following methods, namely: (a) in deposits with any scheduled bank, free from charge or lien (b) in unencumbered securities of the Central Government or of any State Government; (c) in unencumbered securities mentioned in clauses (a) to (d) and (ee) of section 20 of the Indian Trusts Act, 1882; (d) in unencumbered bonds issued by any other company which is notified under clause (fl of section 20 of the Indian Trusts Act, 1882; (v) The amount deposited or invested, as the case may be, above shall not be utilized for any purpose other than for the repayment of debentures maturing during the year referred above, provided that the amount remaining deposited or invested, as the case may be, shall not at any time fall below 15 per cent of the amount of debentures maturing during the 3lst day of March of that year'



10.3 Creation of Debenture Redemption Reserves(DRR)

10.3.1 A company has to create DRR in case of issue of debenture with maturity of more than 18 months.

10.3.2 The issuer shall create DRR in accordance with the provisions given below,

(a) If debentures are issued for project finance for DRR can be created upto the date of commercial production.

(b) The DRR in respect of debentures issued for project finance may be created either in equal instalments or higher amounts if profits so permit.

In the case of partly convertible debentures, DRR shall be created in respect of non-convertible portion of debenture issue on the same lines as applicable for fully non-convertible debenture issue.

In respect of convertible issues by new companies, the creation of DRR shall commence from the year the company earns profits for the remaining life of debentures.

(e) DRR shall be treated as a part of General Reserve for consideration of bonus issue proposals and for price fixation related to post tax return.

Company shall create DRR equivalent to 50% of the amount of debenture issue before debenture redemption commences.

Drawl from DRR is permissible only after 10% of the debenture liability has actually been redeemed by the company.

The requirement of creation of a DRR shall not be applicable in case of issue of debt instruments by infrastructure companies.

Section 117C requires every company to create a Debenture Redemption Reserve (DRR) to which 'adequate amounts' shall be credited out of its 'profits' every year until such debentures are redeemed, and shall utilize the same exclusively for redemption of a particular set or series of debentures only. Thus, the quantum of DRR to be created before the redemption liability actually arises in normal circumstances should be 'adequate' to pay the value of debentures plus accrued interest (if not already paid), till the debentures are redeemed and cancelled. Since the Section requires that the amount to be credited as DRR will be carved out of profits of the company only, there is no obligation on the part of the company to create DRR if there is no profit for the particular year.

External Commercial Borrowing (ECB),

The Reserve Bank of India has issued a Circular dated 30 November 2015, outlining the new framework for External Commercial Borrowings (ECB), replacing the existing guidelines issued about a decade ago. The overarching principle of the new framework has been to liberalise and encourage long term ECBs denominated in foreign currency, and ECBs denominated in INR. 

For this purpose, these ECBs have been segregated from other ECBs as separate ‘Track II’ and ‘Track III’ respectively under the new framework. Further, there have been various amendments made in respect of other ECBs having average maturity of less than 10 years.