Sources of Finance 2011

8/7/2019 Sources of Finance 2011

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Sources of Finance

By Ms. Manjari Sharma


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Financial Requirements of Business:

Short Term Financial Requirements Long Term Financial Requirements


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Classification of S.O.F.

Accordingto Period

LongTermSourc

es

ShortTermSourc

es

AccordingTo

ownership

OwnCapital

Borrowed

Capital

According ToSource of

Generation

InternalSources

ExternalSources


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Internal Financing

Depreciation as a Source of Finance Financing Through Retained Earning


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Loan Financing

Loan

Financing

1.ShortTerm Loans

2.LongTerm Loans


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1. Short Term Loans/ Credits

1. Trade credit

2. Commercial banks

a) Loansb) Cash Credits

c) Hypothecation

d) Pledge

e) Overdrafts

f) Bills Discounted & Purchase


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3. Public Deposits

4. Finance Companies

a) Leasing & hire Purchaseb) Merchant banking

5. Accrual Accounts

6. Indigenous Bankers

7. Advances From Customers


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8. Miscellaneous Sources


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2. Long Term or Term loans


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Special Features:

Objectives

Security

Time period

Formal Agreement Participation basis

Introduces financial discipline

Refinance facility

Project oriented approach

Special conditions


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Sources of Term Loans

Specialized financial Institutions ordevelopment banks


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1. IDBI

Industrial Development Bank of India-

1964


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Objectives & Functions

Planning, promoting & developing industries.

Co-ordinating the working of institutions

engaged in financing promoting or developingindustries and assisting in the development of

such institutions.

Providing technical & administrative

assistance.


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4. IFCI

Industrial Finance Corporation of India

Ltd.


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Functions:

Guaranteeing Loans & Advances.

Undertaking issue of stocks, shares, bonds or

debentures.Extending guarantees.

Acting as the agent of the Central Government

or for World Bank.Undertaking financing of projects with the

IDBI & other Financial institutions.


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Functions:

Guaranteeing secured loans in rupeesrepayable over a period of 15 years

Making similar loans in foreign currencies forpayments of imported capital equipment &Technical services.

Guaranteeing rupees payments for credit made

by others.Furnishing technical & administrative

assistance to Indian Industries.


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6. SIDBI

Small Industries Development Bank of

India


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7. SFCs

State Financial Corporations


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8. SIDCs

State Industrial Development

Corporations


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9. NEDFi

North Eastern Development FinanceCorporation Ltd.


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10. LIC

Life Insurance Corporation of India


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11. GIC

General Insurance Corporation of India


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12. UTI

Unit Trust of India


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13. IDFC

Infrastructure Development Finance

Company Ltd.


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14. Commercial Banks


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New Financial Institutions &

Instruments


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I. New Financial Institutions

A. Venture Capital Institutions

1. RiskCapital Foundation of IFCI

2. Venture Fund of IDBI3. Venture Capital Fund of SIDBI

4. Venture Capital Fund of Technology

Development & Infrastructure Corporation ofIndia(TDICI)

5. Other Ventures Capital Funds


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C. Factoring Institutions

1. Credit Recording

2. Credit Administration3. Credit Protection

4. Credit Financing

5. Finance & Business Information


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D. Forfaiting

Purchase of Bills of Exchange or Promissory

notes falling due at a future date arising fromthe export transactions


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E. Credit Rating Institutions

1. CARE- Credit Analysis & Research Ltd.

2. CRISIL- Credit Rating Information &Services of India

3. ICRA- Investment Information & Credit

Rating Agency of India.4. FITCH India


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F. Over The Counter Exchange of India

G. National Stock Exchange of India


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II. New Financial Instruments

1. Commercial Paper (CP)

2. Certificate of Deposit (CD)

3. Securitization of Debt


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Loan Syndication

Commitment for term Loans from the financial

institutions and banks for financing a particular

project.

Here two or more financial institutions / banks

agree to finance a particular project.


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Steps:

1. Preparation of the Project Report

2. Preparation of loan Application

3. Selection of a Financial Institution for Loan

syndication4. Receipt of sanction letter from the financial

institution

5. Compliance of the terms and conditions of the

loan agreement by the borrower6. Documentation

7. Disbursement of loan.


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Thanks

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Sources of Finance 2011

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