MUMBAI, Jan 2 (Reuters) - The Reserve Bank of India will
allow issuers to buy back commercial papers (CPs) before
maturity, a move which will provide greater flexibility for
companies in managing their liquidity.
The CPs must be bought back in the secondary market at
prevailing market prices and cannot be bought back for at least
seven days after the issuance date, the RBI said in a
consolidated guideline on CPs late on Tuesday.
"There are a few small issuers who sometimes buy back CPs if
they have surplus cash to save interest cost," said a senior
bank treasury official.
"But there was no clear rule. This guideline now gives
clarity," the official said.
The circular also allowed banks and financial institutions
to provide "stand-by" facilities to enhance the credit rating of
the CP. This measure is allowed for loans, but not for corporate
The total amount of CPs outstanding is around 2 trillion
rupees as of Nov. 30, with issuance rising nearly 60 percent
during in the fortnight ending Nov. 30, according to the RBI's
(Reporting by Suvashree Dey Choudhury)