Based on the provided reference, CP banking most likely refers to activities related to Commercial Paper (CP). Commercial Paper is essentially a way for companies to borrow money for a short period. It's like a short-term IOU.
Here's a breakdown:
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Definition: Commercial Paper (CP) is an unsecured money market instrument issued in the form of a promissory note. This means it's not backed by any specific asset and represents a promise to pay back the borrowed amount at a specified future date.
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Purpose: Companies issue CP to raise short-term funds for various needs, such as working capital or bridging finance.
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Issuer Requirements: Typically, only highly rated corporate borrowers can issue CP. This is because CP is unsecured, so investors rely on the issuer's creditworthiness.
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Introduction in India: Commercial Paper was introduced in India in 1990 to diversify the sources of short-term borrowing for corporations.
Therefore, CP banking would involve activities such as:
- Issuing Commercial Paper: Banks may assist companies in structuring and issuing Commercial Paper.
- Investing in Commercial Paper: Banks, mutual funds, and other financial institutions may invest in Commercial Paper.
- Underwriting Commercial Paper: Banks may act as underwriters, guaranteeing the sale of Commercial Paper to investors.
- Trading Commercial Paper: Banks participate in the secondary market for Commercial Paper, buying and selling it.
