CP rates

Commercial paper is an unsecured promissory note with a fixed maturity of 1 to 364 days. Commercial paper is a money-market security issued (sold) by large banks and corporations to get money to meet short term debt obligations and is only backed by an issuing bank or corporation's promise to pay the face amount on the maturity date specified on the note. Since it is not backed by collateral, only firms with excellent credit ratings from a recognized rating agency will be able to sell their commercial paper at a reasonable price. Commercial paper is usually sold at a discount from face value, and carries higher interest repayment rates than bonds. Typically, the longer the maturity on a note, the higher the interest rate the issuing institution must pay. Interest rates fluctuate with market conditions, but are typically lower than banks' rates.

India Inc is shifting to commercial paper market in a major way to borrow cheap after almost all the banks started increasing their lending rates by raising their base as well as benchmark prime lending rates in recent times. 

Through commercial paper (CP), corporate houses can borrow below base rate, which is the minimum rate the banks have to charge in case they provide credit through normal routes. However, the corporates cannot borrow for more than one year through the CP route. Consequently, the rates for CP has further gone up in the last fortnight when the corporates continued to borrow heavily through CP.

The banks in a bid to meet the demands for short-term funds from corporates are raising resources through short-term certificate of deposits (CDs).

CP rates are used by Bankers to decide lending as they are aware that at what rate the companies are able to access the market.