To enable highly rated corporate borrowers to diversify their sources of short term borrowings.

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1 COMMERCIAL PAPER (CP)

2 CP is an unsecured money market instrument issued in the form of a Promissory Note and was introduced in Can now be issued in Dematerialised form. To enable highly rated corporate borrowers to diversify their sources of short term borrowings. Corporates (TNW not less than Rs. 4 Crs, has sanctioned working capital limits, has account with Standard Asset Classification), Primary Dealers and Financial institutions are allowed to issue CPs. AllCPstoberatedbyCRAs CRISIL,ICRA,CARE&Fitch. Minimum Credit Rating be P-2 or equivalent.

3 Maturity 7days anduptooneyearfromthedateofissue.(withinrating validity). IndenominationsofRs.5lacsormultiplethereof. AggregateamountofCPshallbewithinthelimitasapprovedbytheBoard of Directors or the quantum indicated by CRA, whichever is lower. Banks and FIs have the flexibility to fix working capital limits, duly taking into account the resource pattern of company s financing, including CPs. A Scheduled bank can act as an Issuing & Paying Agent (IPA) for issuance ofcp. Investment in CPs can be held by individuals, banks, other corporate bodies and unincorported bodies, NRIs and FIIs.(FIIs within the limits set bysebi).

4 CPistradedandalltradesarereportedtoFIMMDA. NoissuerisallowedtohavetheCPunderwirttenorco-accepted. BanksandFIsareallowedtoprovidecreditenhancementbywayofstandby assistance/credit, back-stop facility, based on their commercial judgement. Outstanding CPs as on 15/09/2011 Rs. 1,60,000 crs. Average CP Outstanding CPs as on 15/09/2011 Rs. 1,60,000 crs. Average CP issuancesperfortnightforpast6months Rs.24,102Crs.

5 Receivable Financing

6 Products Bills discounting Factoring Forfaiting

7 Bill Discounting Cashing or trading a bill of exchange at less than its par value and before its maturity date. The cash thus realized varies according to the number of days until maturity and the risk involved. Buyers can pay suppliers by discounting purchase bills. Documents like trade invoices challans, truck receipts/railway receipts, bill of lading can be used to authenticate the transactions. Suppliers can discount sales bill for instant cash

8 Benefits of Bill Discounting Provides ready cash for the business. Enables the business to go for credit sales thus improves the sales and ultimately the profit for the business Improves liquidity and accelerates the production cycle

9 Factoring of Receivables Factoring is a financial transaction whereby a supplier sells its accounts receivable (i.e., invoices) to a financer(called a factor) at a discount. For eg for a seller/provider of goods or services, Bank pays against credit invoices/bills that he regularly raises on his established clients. In settlement of this obligation, his clients pay the Bank on the respective due dates directly

10 Factoring of Receivables Seller Buyer / Debtor Discounted amount Payment Assignment of Invoice Axis Bank Collection

11 Factoring : Benefit to Corporate Readily convert credit receivables to cash Focus on core business as collection of receivables is outsourced No additional debt created on balance sheet No security / collateral Credit line" grows as business expands. Easy scalability

12 Difference between Bills Discounting & Factoring Bills Discounting Factoring Always with recourse With or without recourse Individual transaction oriented i.e. each bill is separately assessed and discounted. Provision of bulk finance against several unpaid trade generated invoices in batches No assignment of debt Assignment of Debt

13 Forfaiting Exporter ships goods/provide services as per contract and submits necessary documentation to Bank Trade documents are transmitted to importer s bank for acceptance and/or assignment of proceeds to Bank On receipt of such confirmation Bank pays discounted proceeds to exporter on a non-recourse basis Bank assumes payment risk of the importers Bank

14 Forfaiting Benefits Forfaiting eliminates risks(political, transfer and commercial risk) transactional documents. Improves cash flow by providing ready liquidity against Forfaiting allows exporter to discount Long term debts also.

15 Difference between Factoring & Forfaiting While factoring involves a firm selling its Accounts Receivable (AR ) to a factor over a period of time, forfaiting involves the seller selling individual AR as a single transaction Since forfaiting assumes all risk in the AR, the counterparty is usually a financial institution unlike factoring which engages with companies. Factoring is used as a day-to-day working capital medium, it usually involves high volume low value transactions as opposed to forfaiting which is largely high valuelow volume

16 THANK YOU

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