What is commercial paper?

Commercial paper is a short-term IOU. A company that needs cash for a few weeks or months issues an unsecured promissory note at a discount to face value, an investor buys it, and the company pays the full face value back at maturity. In India the instrument is regulated by the Reserve Bank of India, not by SEBI, under the Master Direction (Commercial Paper and Non-Convertible Debentures of original or initial maturity upto one year) Directions, 2024, which came into force on 1 April 2024. This guide explains what commercial paper is, who can issue and hold it, and where its data gets reported. It is not investment advice.

How does commercial paper work?

An issuer with a short-term funding need sells paper today for less than its face value and repays the face value on the maturity date. The difference is the investor's compensation. There is no coupon: Paragraph 5(b)(i) states that commercial paper shall be issued at a discount to the face value, full stop.

Every issuance runs through an Issuing and Paying Agent, which must be a scheduled commercial bank. The subscription to the primary issue is routed through the IPA, the repayment is routed through the IPA, and the IPA is the party that reports the issuance. That role is set out in detail in what is an issuing and paying agent.

Because the instrument is unsecured, the credit rating carries the weight. Paragraph 5(e) sets the minimum rating for issuance at A3, on the rating symbols and definitions prescribed by SEBI, and the rating agency must be registered with SEBI and accredited by the RBI as an External Credit Assessment Institution for bank loan ratings. The rating scale itself is explained in what is a credit rating.

Who can issue commercial paper?

Paragraph 3 lists the eligible issuers, subject to one condition that applies to all of them: every fund-based facility the issuer has taken from a bank, All India Financial Institution or NBFC must be classified as Standard at the time of issue.

The list is: companies; NBFCs including housing finance companies; InvITs and REITs; All India Financial Institutions (the Directions name Exim Bank, NABARD, National Housing Bank, SIDBI and NaBFID); 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 other entity specifically permitted by the RBI. Co-operative societies and limited liability partnerships with net worth of one hundred crore rupees may also issue commercial paper.

Who can hold it?

All residents are eligible investors. Non-residents may invest to the extent permitted under FEMA, 1999. One prohibition cuts across both: no person, resident or non-resident, may invest in commercial paper issued by a related party, in the primary market or through the secondary market.

Then there is the ceiling that decides the character of this market.

Combined with the five lakh rupee minimum lot, that cap is why retail participation in commercial paper is marginal. Individuals are not excluded, they are boxed into a quarter of any issue.

What are the hard rules on tenor, options and settlement?

Paragraph 5(a) is short and unusually specific:

• Form. Dematerialised, held with a SEBI registered depository.
• Denomination. Five lakh rupees minimum, in multiples of five lakh thereafter.
• Tenor. Not less than seven days, not more than one year.
• Options. Issuance with a call or put option is not permitted.
• Underwriting. Not permitted to be underwritten or co-accepted.
• Primary settlement. Funds to the issuer and paper to the investor within T+4 working days, where T is the deal date.
• Individuals. Capped at 25 per cent of the total amount issued.

In the secondary market, commercial paper trades over the counter, including on electronic trading platforms, or on recognised stock exchanges approved by the RBI. OTC trades settle T+0 or T+1, and all OTC trades in commercial paper settle on a delivery-versus-payment basis through the clearing corporation of a recognised stock exchange. Market hours for both primary issuance and secondary trading run 9:00 AM to 5:00 PM on a working day.

What happens on a default?

The default provisions are the sharpest part of the framework, and they matter to anyone tracking credit events.

Paragraph 5(i) states that there is no grace period for repayment, and requires the issuer to make redemption funds available to the IPA by 3:00 PM on the redemption date. If the issuer defaults on a coupon or redemption, in part or in full, Paragraph 5(j) requires it to inform the IPA before 5:00 PM on the day of the default, to publicly disseminate the default, for example on its own website, and for the default to be disseminated on the F-TRAC platform.

Then the consequence: on a default, the issuer may not issue commercial paper or short-term NCDs until it has fully repaid the defaulted obligation, or for six months from the date of default, whichever is earlier. Partial repayments must be distributed to investors in proportion to their investment.

Where is commercial paper data actually reported?

Not in an exchange filing, in most cases. The reporting spine is the trade repository, covered in what is F-TRAC. Paragraph 6 sets four clocks: primary issuances reported by the IPA by 5:30 PM on the day of issuance; secondary market transactions reported with a time stamp within 15 minutes of execution by each counterparty; buybacks reported by the IPA by 5:30 PM on the buyback date; defaults and repayments of defaulted obligations reported by 5:30 PM on the relevant day. Depositories report holdings to the RBI fortnightly, on the 15th and the last day of the month.

A commercial paper issue can also be listed. Where it is, Chapter XVII of SEBI's Master Circular for issue and listing of non-convertible securities, securitised debt instruments, security receipts, municipal debt securities and commercial paper, dated 15 October 2025, sets out what the issuer files with the exchange, including the current tranche details, all credit ratings including unaccepted ones, the commercial paper borrowing limit with the supporting board resolution, paper issued in the last two years, end use of funds, and the terms of any guarantee.

Commercial paper sits next to two instruments it is often confused with. The comparison against bank-issued deposits is in commercial paper vs certificate of deposit, and the confusingly named short-term debenture in the same RBI rulebook is handled in commercial paper vs NCD.

Commercial paper is the least visible corner of India's listed credit universe, and its disclosure trail runs through a trade repository rather than a stock exchange. Flock reports public regulatory filings with every claim sourced and dated. What any of it means for your money is your call to make.