Corporate Finance

An introduction

Running an Industrial unit involves dealing in commodities,

goods, cash and various money instruments. To acquire these,
the corporates need to secure finance of different types. The
requirements of the corporates being of two types, namely,
short-term and long-term, the nature of finance required also
is of same two types. Securing both types of funds required
by the corporate and their utilisation to an optimal extent
to ensure that the cost of such funds is minimised are the
activities which together constitute Corporate Finance.

Corporates are able to generate only a minor portion (25-35%)

of these finances internally, the rest has to come from
external sources, if a corporate has to grow and remain
profitable. Corporate Sector, therefore, has to depend
heavily on the market sources.

The instruments of raising funds from the market are many and
varied and the market segments where these are floated are as
many. While the initial issues (first and subsequent) are
floated in the issue market, old securities (issues floated
earlier) are traded in the secondary market segment of the
capital markets. Capital markets, are therefore, the major
sources of funds for the corporate sector. However, markets
are tough taskmasters and only those corporates, which
perform well, can hope to secure funds from the market.
Markets use a variety of parameters and tools including ratio
analysis to gauze the performance of a corporate. Another
equally important source of funds is the borrowing from
financial intermediaries i.e. financial Institution and
Commercial Banks. The methods of raising funds may vary from
unit to unit and industry to industry, but broadly, the
sources of borrowing for corporate units are:

Financial institutions
Commercial banks
Deposits from general public
Shares to existing or new shareholders. (ORDINARY SHARES &
PREFERENCE SHARES)

Another very important source of funds, which is gradually

opening up for Indian Corporates is the Global Market. Not
only do the corporates access Foreign Exchange through this
market (loans in foreign currencies are also available from
term-lending institutions like the IDBI, ICICI, IFCI, and
commercial banks), but more important, they tap the global
pool of savings. Lately, this source of funding has been
increasing in importance.

NEED AND SOURCES OF FINANCE

To look at the areas where corporates require finance: Click

below

Medium and long-term purposes

Short term purposes
Finance > Overview

The financial system or the financial sector of any country

is a complex matrix of Institutions, markets and financial
instruments. It consists of specialised and non-specialised
financial institutions, of organised and unorganised
financial markets, of financial instruments and services. All
of these items have one thing in common. They facilitate
transfer of funds. These parts are not always mutually
exclusive; Inter-relationships between these are a part of
the system e.g.. Financial Institutions operate in financial
markets and are, therefore, a part of such markets.

The word system, in the term financial system, implies a set

of complex and closely connected or inter-linked
Institutions, agents, practices, markets, transactions,
claims, and liabilities in the economy. The financial system
is concerned about money, credit and finance--the three terms
are intimately related yet are somewhat different from each
other. Money refers to the current medium of exchange or
means of payment. Credit or loans is a sum of money to be
returned, normally with interest; it refers to a debt of
economic unit. Finance is monetary resources comprising debt
and ownership funds of the state, company or person.

Indian Financial sector, with Ministry of Finance at the helm

as policy making body, with two regulators RBI and SEBI
consists of three principal segments i.e.

• Financial Institutions
• Banking Segment

• Markets: Debt/Equity/Securities

FAQ

Functions of RBI

The Fucntions of the Reserve Bank of India

The main functions of the Reserve Bank of India are to:

• Maintain financial stability and enable the growth of sound
Financial Institutions. This should, in turn, enable monetary
stability and allow economic units to carry out their business
with confidence.
• Maintain monetary stability for the business and economic life
towards growth and proper functioning of a mixed economic system
in the country.
• Maintain a stable payments and currency system and facilitate
safe and efficient execution of financial transactions.
• Promote a stable financial structure of markets and systems and
help it to operate with optimum efficiency
• Regulate the money and credit supply in the economy to help
maintain price stability to a reasonable extent.
• Ensure credit allocation in line with national economic
priorities.

Indian Private Banks: Small but making a bigger impact

The new generation banks have a tiny share of the market but
they are setting the agenda for their larger rivals, The best
of India's new private sector banks are small but perfectly
formed. Their growth during the past five years has reached a
defining moment. Financial Times, London survey.......

M&A in India: Predators set for hostile bids

Mergers and acquisitions are reshaping Indian industry. A

fourfold rise in takeovers sets the scene for a new round of
fee-earning opportunities for bankers. Financial Times,
London survey.......

The benefits of Internet Banking: Growing with Technology

Innumerable services are available via the Internet today.

Internet banking provides a higher level of convenience that
both commercial and retail customers desire to have. With
this service, the bank not only has the opportunity to manage
their business better, but can also help their customers
achieve a much more efficient process of managing their
finances......
Corporate Banking & the Internet

Many banks have already gained significant market advantage

by using the Internet's powerful and cost-effective
communication infrastructure for their retail customer base.
Business customers are both ready for this delivery channel
and are willing to pay for it. Now is the time to address
this lucrative market. Read about objectives and critical
success factors required to meet these challenges........

Valuing Stock Investments

What do bank employees need to know to answer questions from

customers about the value of their stock investments and the
tax consequences of stock sales? Because banks have played a
traditional role in executing securities transactions in
connection with customer trust accounts, this is an area of
vital interest to the banking industry. This article presents
some basic concepts and illustrations of how the rules
work.......

E-commerce & Internet Security

While the Internet has delivered a major new business channel

for banks, it has also exposed them to new and damaging forms
of security risk. To tap the full potential of Internet
banking, financial institutions must do their utmost to
control security risks. Every bank needs to carefully manage
the security issues surrounding Internet banking and
effectively implement state-of-the-art security
technologies.....

India & IMF

Read about India's position in the fund, membership status,

outstanding purchases & loans etc.....

Getting the Most out of Your Asset/Liability Committee

As a result of the recent regulatory focus on interest rate

risk, many banks are placing renewed focus on their
asset/liability (A/L) functions, models and risk management
processes. The responsibilities of A/L committees are
evolving to include much more than interest rate risk
evaluation and possibly risk management........

Consumer credit in India: The middle class mantra

Indians once shunned debt. But now they have discovered

personal loans and are turning to banks in record numbers.
Home loans, credit cards and other forms of personal lending
are one of the fastest growing areas in the financial
services industry and foreign banks are redoubling their
 efforts to secure a share of the market. Financial Times,
London survey .......

Internet Banking Incentives to customers

Internet banks offer a variety of features and perks, rushing

to lure online customers. The race is on to increase market
share and create customer loyalty with features that make
online banking friendlier, more useful, and less expensive.
Here is a review of features found in Internet banking

Small Savings Schemes Loosing out to Bank Deposits as

Interest Rates Shoot Up: ASSOCHAM

Small Savings have experienced a whopping decline of 21 per cent during the financial year
2006-07 as commercial banks offer higher interest rates on the deposits to lure investors,
according to the ASSOCHAM Eco Pulse Study (AEP).

An ASSOCHAM Study on “Growth Trend of Small Savings Schemes” has revealed that the
collection under the small saving schemes run by the State and the Central Government
registered a steep decline of 21 per cent in the financial year 2006-07 as compared to the
compound annual growth rate of 13 per cent during six years period from 2000-01 to 2005-06.
At the same time, the saving deposits with banks increased by 14 per cent maintaining the
CAGR of 19 per cent.

In addition, it was observed that the Government has also lost interest from these small saving
schemes due to the high interest cost associated with them, while they can obtain debt from
market at lower rates. “High interest regime has introduced the small saving schemes to the
direct competition from the commercial banks. With the advent of private fund managers
gaining strength in financial market, the small savings could face some more loss in its
deposits”, said Mr. Venugopal Dhoot, President, ASSOCHAM.

Total receipts under the small savings schemes during the financial year 2006-07 were worth
Rs. 1,37,560 crore as compared to Rs. 1,73,283 crore in the previous year. The amount
outstanding in these schemes was Rs. 5,59,932 crore. Total saving bank deposits with the
commercial banks was Rs. 6,55,274 crore at the end of FY07.

Small savings schemes including post office saving bank deposits, national saving schemes,
monthly income schemes, national saving certificates, Indira Vikas Patra etc, are meant for to
mobilize the savings from the small investors as they carry attractive interest rates, sovereign
guarantee, tax benefits, said Mr. Dhoot.

Commercial banks raised the deposit rates by 200 basis points during the financial year 2006-
07, as the Reserve bank tightened the money flow in the market. The rate of return on the
deposits of 1 month to a year was 7 per cent as compared to 5 per cent in 2005-06, and the
rate on deposits of more than 1 year was 9 per cent. Consequently, the flow of the savings
changed their course from, Small Saving Schemes in which rate of return is Government
administered, to saving deposits with the banks. The interest rates offered by the small saving
schemes range between 3.5 per cent on saving deposit account, 7.5 per cent on 1 year time
deposits and 8 per cent on 2 year deposits.

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