Indian companies’ funding strategies are evolving rapidly. To support business expansion, meet working capital requirements, refinance existing debt, and manage temporary cash flow needs, companies are no longer relying solely on bank loans. As a result, Commercial Paper (CP) has emerged as an important source of short-term funding.
In the April-June quarter of FY27, companies raised Rs 5.37 lakh crore through Commercial Papers, the highest level seen in the past 18 quarters. In June alone, issuances ranged between Rs 2.53 lakh crore and Rs 2.55 lakh crore, marking the highest monthly level in nearly five years, or 55 months.
Let us understand Commercial Paper in detail and explore what its growing use indicates for companies and investors.
What’s Happening?
Commercial Paper is a short-term debt instrument through which companies borrow funds directly from investors. It can be thought of as a written promise by a company to repay borrowed money within a specified period. Companies typically use CPs to pay suppliers, purchase raw materials, finance working capital, or bridge temporary cash flow gaps.
According to RBI regulations, the maturity period of a Commercial Paper ranges from seven days to one year. It is an unsecured instrument, meaning no assets such as property, machinery, or equipment are pledged as collateral. As a result, investors rely entirely on the issuer’s financial strength and creditworthiness.
Companies, primary dealers, and certain All India Financial Institutions that meet RBI’s eligibility criteria are permitted to issue Commercial Papers. Issuers must obtain a credit rating from an RBI-recognised credit rating agency. The minimum eligible rating is CRISIL’s P-2 or its equivalent, and the rating must remain valid at the time of issuance.
How Do Companies Raise Funds Through Commercial Papers?
Commercial Papers are generally issued at a discount to their face value. For example, a CP with a face value of Rs 100 may be issued at Rs 97. Upon maturity, the company repays the full face value of Rs 100, with the Rs 3 difference representing the investor’s return. The borrowing cost depends on the issuer’s credit rating, prevailing interest rates, and overall market liquidity.
For instance, if an NBFC requires Rs 1,000 crore for six months to finance vehicle loans, it may choose to issue Commercial Papers instead of borrowing from a bank. Mutual funds, banks, insurance companies, and other institutional investors can subscribe to the issue. Once the CP matures and is repaid, the company can issue fresh Commercial Papers if it continues to require funding.
A recent example is Himadri Speciality Chemical, which raised Rs 150 crore through Commercial Papers. The company issued 3,000 units with a face value of Rs 5 lakh each, all of which were subscribed to by Kotak Mahindra Bank. The 90-day unsecured issue carries a fixed coupon of 6.60% per annum. The allotment took place on July 9, 2026, with maturity scheduled for October 7, 2026. ICICI Bank acted as the Issue and Paying Agent.
Why Has There Been Such a Sharp Rise in Issuances?
According to Prime Database, the amount raised through Commercial Papers in June was 84.6% higher than May’s Rs 1.37 lakh crore. It was also 59.4% higher than the Rs 1.59 lakh crore raised in June 2025. Before this, the previous peak stood at Rs 2.69 lakh crore in July 2021.
According to RBI data, companies raised Rs 1.45 lakh crore through CPs in April 2026 and around Rs 1.38 lakh crore in May. During the first fortnight of June, issuances stood at Rs 1.59 lakh crore, while the second fortnight contributed more than Rs 96,000 crore. In June alone, NBFCs issued Rs 1.04 lakh crore worth of CPs, corporates raised Rs 80,000 crore, and public financial institutions accounted for another Rs 70,000 crore.
During the same quarter, incremental bank credit also increased by 133% to Rs 5.6 lakh crore, compared with Rs 2.4 lakh crore in the corresponding period last year. This suggests that Commercial Papers are complementing, rather than replacing, bank borrowing. RBI also infused more than Rs 6 lakh crore of temporary liquidity into the banking system through variable rate repo auctions, while the banking system reported a liquidity surplus of around Rs 1.85 lakh crore as of July 5.
What Does This Mean for Investors?
Commercial Papers are primarily purchased by mutual funds, banks, insurance companies, pension funds, corporate treasuries, and eligible foreign portfolio investors. Retail participation remains limited because CPs are issued in denominations of Rs 5 lakh and multiples thereof.
While Commercial Papers offer investors an opportunity to earn a predetermined return over a short period, they are unsecured instruments. Therefore, investors should not focus solely on attractive yields. It is equally important to assess the issuer’s credit rating, repayment capacity, maturity profile, and intended use of funds. In Himadri’s case, the fixed 6.60% coupon and 90-day maturity provide visibility on expected returns, but the safety of the investment ultimately depends on the company’s financial strength.
What’s Next?
Around Rs 4 lakh crore worth of Commercial Papers are scheduled to mature between July and September 2026. Of this, nearly Rs 70,000 crore will mature in July, Rs 1.07 lakh crore in August, and Rs 2.31 lakh crore in September. NBFCs account for 41% of these maturities, while the top 10 issuers together account for 47%.
In the coming months, refinancing pressure may ease somewhat. However, continued expansion of NBFC balance sheets, corporate working capital requirements, and strong investor demand are likely to keep Commercial Paper issuances elevated. At the same time, the market’s growing dependence on a few large issuers means that credit quality and liquidity will remain key factors to watch. The sustained rise in Commercial Paper issuances reflects companies’ increasing focus on optimising funding costs while maintaining a balanced mix of bank borrowing and market-based financing.
Disclaimer: This article is for educational and informational purposes only and does not constitute investment advice or a recommendation to buy or sell any securities. The companies mentioned are cited as examples within the context of market developments. Investors are advised to conduct their own due diligence and consult their financial advisor before making any investment decisions.
Investments in the securities market are subject to market risks. Read all related documents carefully before investing.
