4.36 LAF (Liquidity Adjustment Facility):
On the basis of the recommendations of the second Narsimham Committee, 1998, an interim LAF was introduced in 1999 to provide a ceiling and fixed rate repos were continued to provide a floor for money market rates. Liquidity Adjustment Facility was introduced for the first time from June 2000 onwards, and revised in 2001 and 2004.
4.37 Commercial Paper (CP):
Commercial paper is an unsecured promissory note with a fixed maturity ranging from seven days to one year. Commercial Paper is a money market security issued (sold) by highly rated corporate borrowers, primary dealers and large financial institutions to raise funds to meet their short term debt obligations, and is backed by the issuers’ 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 are able to sell their commercial paper at a reasonable price.