Corporate Finance

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

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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:

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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 200607, 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. <<< GO TO NEXT PAGE