Commercial paper vs certificate of deposit
Commercial paper vs certificate of deposit is the cleanest comparison in India's money market, because the two instruments do not overlap on the issuer side at all. A bank cannot issue commercial paper. A company cannot issue a certificate of deposit. Both are short-dated, both are dematerialised, both trade over the counter and both report to the same repository, but they are governed by separate RBI Master Directions and answer to different logic. This guide sets them side by side. It is not investment advice.
Definition
Commercial paper and a certificate of deposit
are both unsecured short-term money market instruments issued at a discount, in minimum lots of five lakh rupees, for tenors of seven days to one year. Commercial paper is a promissory note issued by companies and other eligible body corporates. A certificate of deposit is a usance promissory note issued only by banks. Source: Reserve Bank of India.
Who can issue each instrument?
This is the difference everything else follows from.
A certificate of deposit may be issued only by Scheduled Commercial Banks, Regional Rural Banks and Small Finance Banks, under Paragraph 3 of the RBI (Certificate of Deposit) Directions, 2021. CDs issued by an All India Financial Institution fall outside those Directions and are governed by the RBI Master Circular on Resource Raising Norms for Financial Institutions dated 1 July 2015.
Commercial paper may be issued by companies, NBFCs including housing finance companies, InvITs and REITs, All India Financial Institutions, any other body corporate with a minimum net worth of one hundred crore rupees that is statutorily permitted to incur debt in India, and any entity the RBI specifically permits. Co-operative societies and limited liability partnerships with a net worth of one hundred crore rupees may issue commercial paper too. Every one of them is subject to the same gate: all fund-based facilities availed from banks, AIFIs or NBFCs must be classified as Standard at the time of issue.
A certificate of deposit is a regulated bank's own liability. Commercial paper is a corporate's unsecured promise. That is why one requires a credit rating and the other does not.
Side-by-side comparison
| Commercial paper | Certificate of deposit | |
|---|---|---|
| Governing rulebook | RBI Directions, 2024, effective 1 Apr 2024 | RBI Directions, 2021, effective 7 Jun 2021 |
| Issuer | Companies, NBFCs, InvITs, REITs, AIFIs, body corporates with Rs 100 cr net worth, co-op societies and LLPs with Rs 100 cr net worth | Scheduled Commercial Banks, Regional Rural Banks, Small Finance Banks |
| Instrument | Unsecured promissory note | Negotiable, unsecured usance promissory note against funds deposited |
| Tenor | 7 days to 1 year | 7 days to 1 year at issuance |
| Minimum denomination | Rs 5 lakh, multiples of Rs 5 lakh | Rs 5 lakh, multiples of Rs 5 lakh |
| Minimum credit rating | A3 | Not prescribed in the Directions |
| Pricing | Discount to face value only | Discount, or fixed or floating rate |
| Investors | All residents; non-residents as FEMA permits | All persons resident in India |
| Individual participation cap | 25% of the total amount issued | None prescribed |
| Related-party investment | Prohibited, primary and secondary | Not prescribed in the Directions |
| Mandatory intermediary | Issuing and Paying Agent for each issuance | None prescribed |
| Primary issuance reported by | The IPA | The issuing bank |
| Buyback allowed from | 7 days after issue | 7 days after issue |
| Loans against the instrument | Not addressed | Banks may not lend against CDs unless RBI permits |
| Options | Call or put not permitted | Not addressed |
| Underwriting | Not permitted | Not addressed |
25%
Cap on individual and HUF subscription in a primary commercial paper issuance. Certificates of deposit carry no such cap.
Source: RBI (Commercial Paper and NCDs upto one year) Directions, 2024, Paragraph 5(a)(viii)
Four differences that actually change behaviour
1. The rating requirement. Commercial paper cannot be issued below an A3 rating, assigned by a CRA registered with SEBI and accredited by the RBI as an External Credit Assessment Institution for bank loan ratings. The Certificate of Deposit Directions contain no rating provision. The scale itself is explained in what is a credit rating.
2. The intermediary chain. Every commercial paper issuance requires an issuing and paying agent, a scheduled commercial bank that verifies documents, certifies the issue, routes subscription and repayment money, and reports to the repository. The CD Directions impose no equivalent, because the issuing bank already occupies that position. So for a CD, the issuer reports its own primary issuance to F-TRAC by 5:30 PM on the day of issuance. For commercial paper, the IPA does.
3. The individual cap and the related-party bar. Commercial paper carries both: individuals and HUFs together may not take more than a quarter of any primary issuance, and nobody may invest in paper issued by a related party in either market. The CD Directions carry neither.
4. The lending restriction. Banks are not allowed to grant loans against CDs unless the RBI specifically permits it. There is no comparable prohibition in the commercial paper Directions. That rule is about bank balance sheets rather than about investors.
What is the same
More than the differences, in practice. Both instruments are dematerialised and held with a SEBI registered depository. Both use five lakh rupee lots. Both trade over the counter, including on electronic trading platforms, or on recognised stock exchanges approved by the RBI, and both settle T+0 or T+1 on a delivery-versus-payment basis through a clearing corporation. Both have no grace period for repayment. Both run 9:00 AM to 5:00 PM market hours. Both allow buyback from seven days after issue, at prevailing market price, offered to all investors in the issue on identical terms, with bought-back paper extinguished.
And both report to the same place on the same clock: primary issuance by 5:30 PM on the day of issuance, secondary transactions within 15 minutes of execution by each counterparty, buybacks by 5:30 PM on the buyback date, all on the F-TRAC platform of the Clearing Corporation of India, described in what is F-TRAC. Depositories report holdings of both to the RBI fortnightly, on the 15th and the last day of the month.
For the instruments in full, see what is commercial paper and what is a certificate of deposit. The third instrument in this rulebook, the short-term secured debenture, is compared in commercial paper vs NCD.
Two instruments, one market, and a single question that separates them: is the borrower a bank. Flock reports public regulatory filings with every claim sourced and dated. What any of it means for your money is your call to make.
Frequently asked questions
What is the main difference between commercial paper and a certificate of deposit?
The issuer. Only Scheduled Commercial Banks, Regional Rural Banks and Small Finance Banks may issue certificates of deposit, under the RBI Directions, 2021. Commercial paper is issued by companies, NBFCs, InvITs, REITs, All India Financial Institutions and other body corporates with net worth of one hundred crore rupees, under the RBI Directions, 2024. Source: Reserve Bank of India.
Do commercial paper and certificates of deposit need a credit rating?
Commercial paper does, a certificate of deposit does not. The 2024 Directions set a minimum rating of A3 for issuance of commercial paper and short-term NCDs. The 2021 Certificate of Deposit Directions contain no rating requirement, because the instrument is a direct liability of a regulated bank. Source: RBI Directions, 2024 Paragraph 5(e) and 2021 Directions.
Are the tenor rules the same?
Yes for both ends of the band. Commercial paper runs not less than seven days and not more than one year, and a certificate of deposit runs not less than seven days and not more than one year at issuance. The short-term NCD in the same commercial paper rulebook is the outlier, at ninety days to one year. Source: Reserve Bank of India.
Can individuals invest in certificates of deposit?
Yes, with no percentage cap. CDs may be issued to all persons resident in India, and the 2021 Directions set no individual participation limit. Commercial paper caps total subscription by all individuals, including HUFs, at 25 per cent of the total amount issued in any primary issuance. Both carry a five lakh rupee minimum lot. Source: Reserve Bank of India.
Flock tracks these filings, sourced, dated, and linked back to the original. See what smart-money entities disclosed, without the guesswork about what it means.
Disclosures shown are public regulatory filings. Data may be delayed or incomplete. Smart-money entities may no longer hold positions shown. Not investment advice.