3. Finance Management
Human resources Material Finances
Technology Information
HR
Department
R & D
Department
IT
Department
Production
Department
Finance
Department
Concerned with
managing financial
resources in the most
optimal manner
Management
4. Finance Management
Module I
Overview of Indian Finance System
Characteristics, components and Functions of
Financial System
Financial Instruments
Meaning, Characteristics
Classification – Equity share, Preferences
Shares, Bonds-Debentures, Certificates of Deposit
Treasury Bills
Financial Market
Meaning, Characteristics
Classification – Capital market, Money market and
finance currency market
Financial Institution
Meaning, Characteristics
Classification – Commercial Banks, Investment-
Merchant Banks and Stock Exchanges
5. Module II
Concept of Returns and Risk
Measurement of Historical Returns and Expected
Returns of a Single Security and Two-security
Portfolio
Measurement of Historical Risk and Expected Risk of
a Single Security and Two-security Portfolio
Time Value of Money
Future value of a Lump Sum, Ordinary Annuity and
Annuity Due.
Present Value of a Lump Sum, Ordinary Annuity and
Annuity Due
Continuous Compounding and Continuous Discounting
Finance Management
6. Module III
Overview of Corporate Finance
Objective of Corporate Finance
Function of Corporate Finance – Investment
Decision, Financing Decision, and Dividend Decision
Financial Ratio Analysis
Overview of Financial Statements – Balance sheet, Profit
and Loss Accounting, and Cash Flow Statement
Purpose of Financial Ratio Analysis
Liquidity Ratio
Efficiency of Activity Ratio
Profitability Ratio
Capital Structure Ratio
Stock Market Ratio
Limitation of Ratio Analysis
Finance Management
7. Module IV
Capital Budgeting
Meaning and Importance of Capital Budgeting
Inputs for Capital Budgeting Decisions
Investment Appraisal Criterion – Accounting rate of
Return, Payback Period, Discount Payback Period,
Net Present Value (NPV), Profitability Index, Internal
Rate of Return (MIRR)
Working Capital Management
Concept of Meaning Working Capital
Importance of Working Capital Management
Factors Affecting an Entity’s Working Capital Needs
Estimation of Working Capital Requirements
Management of Inventories
Management of Receivables
Management of Cash and Marketable Securities
Finance Management
8. Module V
Sources of Finance
Long Term Sources – Equity, Debt, and Hybrids
Mezzanine Finance
Sources of Short Term Finance – Trade Credit, Bank
Finance, Commercial Paper
Project Finance
Capital Structure
Factures Affecting an Entity’s Capital Structure
Overview of Capital Structure
Theories and Approaches – Net income Approach, Net
Operating Income Approach
Traditional Approach and Madigliani-Miller Approach
Relation between Capital Structure and Corporate Value
Concept of Optimal Capital Structure
Finance Management
9. Module VI
Dividend Policy
Meaning and Importance of Dividend Policy
Factors Affecting an Entity’s Dividend Decision
Overview of Dividend Policy Theories and Approaches –
Gordon’s Approach, Walters’s Approach, and
Modiglian-Miller Approach
Finance Management
10. Books
Fundamental Financial Management, 13th Edition (2015)
by Eugene F. Brigham and Joel F Houston; Publisher:
Gengage Publications, New Delhi
Analysis for Financial Management, 10th Edition (2013) by
Robert C. Higgines; Publisher: McGraw Hill Education,
New Delhi
Indian Financial System, 9th Edition (2015) by M. Y. Khan;
Publisher: McGraw Hill Education, New Delhi
Finance Management, 11th Edition (2015) by I. M. Pandey;
Publisher: S. Chand & Company Limited, New Delhi
Finance Management
11. Financial Management
What is financial management?
It’s an area of business management, it is evolving subject, it aims at
judicial use of capital and careful selection of sources of capital.
12. Finance management
F. M. deals with
Procurement of
fund (cost, risk
and control)
Utilisation of
fund (cost of
procurement)
13. In utilization of funds, there are two types of decisions taking,
long term, short term and routine decisions.
14. NATURE OF FINANCIAL MANAGEMENT
• What is the nature of financial management?
• It is an indispensible organ of business finance.
• A business cannot run without financial management.
• It cannot be kept secluded, it has to be a integral organ of the business itself because procuring
finance, utilizing aid, then follow ups, this is a process which cannot go alone, it has to be hand in
hand with the business organization.
• Now it’s a continuous process because it’s not a onetime decision, it’s a regular decision; it’s
evolving day by day. It’s not that at special occasions, I need to call my financial manger and take a
decision.
15. • It is also one of the aspects of financial management that on special occasions, there demand is
higher but during day to day activity also, I need to take my financial decisions, in dividend
payouts, I have to take my financial decisions, so it’s a continuous process, then it’s less
descriptive and more analytical.
• It’s not a descriptive subject; it’s analytical where I have to use my skills, competence to apply
the funds in the most appropriate resources.
• It’s different from accounting function, accounting deals with recording of transaction after it
has taken place, while financial management is a pre hand process, it comes before accounting,
where financial management ends, accounting starts.
NATURE OF FINANCIAL MANAGEMENT
16. • So it’s a broader concept where we need to make the projects, evaluate them, we
have to take decisions, then comes the final transaction
• It helps the decision of top management.
• Decision making process becomes easy with the help of financial management
where elaborate reports are prepared, analytical reviews have been done, cash
flows, fund flows are prepared, to know the short term positions, this way it’s a
very crucial part of business.
NATURE OF FINANCIAL MANAGEMENT
18. Investment decision
• What is investment decision?
Investment decisions when we read, there are certain questions which we need to
answer, that is what is the optimum firm size. What specific asset should be
acquired? What assets if any should be reduced or eliminated.
In nutshell, it is the analysis of long term decisions where we have to acquire
certain long term asset.
19. Investment decisions are also called capital budgeting decision where there are certain
decisions which are mutually exclusive, there are accept/reject decisions which we
need to take applying various techniques of capital budgeting where a decision is taken
that I need to go for this project, I need to purchase this asset or I need to go for
expansion or I need not to go for expansion. So broadly investment decision is
a decision of acquiring or not acquiring a long term project or a long term asset.
20. Financing decision.
Financing decision, under this, a manager
has to take the decision regarding
procurement of fund.
When he has a decision regarding
procurement of fund, what he will do? He
will find out sources of fund from where he
can gather these funds from equity share
capital, from preference share capital or
from debentures or loans
21.
22. Dividend decisions
• Third important function is dividend
decisions. Dividend decision is a decision
where we need to find out wither we need to
pay out the dividend or we need to retain our
earnings. Dividend decision is ascertained by
a formula. This means, it’s called a payout
formula, how much earnings to retain and
how much dividend is to be paid out of retain
earnings. There are certain schools of
thoughts for dividend decisions.
23.
24. Finance management is concerned with managing
financial resources in the most optimal manner
Common terms use to describe resources – Capital,
funds, cash flow, money, etc.
Finance department performs facilitation, reconciliation,
and control functions.
Finance department maintain a constant control over the
various activities of the organization and makes different
departments accountable for the resources that they
consume.
‘The finance manager is on the top and not on the tap’
Nature and Scope of Finance Management
26. 3 Types of Financial Instruments
• Money market instruments.
• Capital market instruments.
• Hybrid instruments.
27. The money market can be defined as a market for
short-term money and financial assets that are near
substitutes for money.
The term short-term means generally a period upto
one year and near substitutes to money is used to
denote any financial asset which can be quickly
converted into money with minimum transaction cost.
Money Market
28. Money market instruments
1. Call/Notice Money
2. Treasury Bills
3. Term Money
4. Certificate of Deposit
5. Commercial Papers
29. Call /Notice-Money Market
• Call/Notice money is the money borrowed or lent on demand
for a very short period. When money is borrowed or lent for a
day, it is known as Call (Overnight) Money.
• Intervening holidays and/or Sunday are excluded for this
purpose. Thus money, borrowed on a day and repaid on the
next working day, (irrespective of the number of intervening
holidays) is "Call Money".
• When money is borrowed or lent for more than a day and up to
14 days, it is "Notice Money". No collateral security is required
to cover these transactions.
30. Inter-Bank Term Money
• Inter-bank market for deposits of maturity beyond 14
days is referred to as the term money market.
• The entry restrictions are the same as those for Call/Notice
Money except that, as per existing regulations, the specified
entities are not allowed to lend beyond 14 days.
31. Treasury Bills
• Treasury Bills are short term (up to one year)
borrowing instruments of the union government.
• It is an IOU of the Government. It is a promise by the
Government to pay a stated sum after expiry of the stated
period from the date of issue (14/91/182/364 days i.e. less
than one year).
• They are issued at a discount to the face value, and on
maturity the face value is paid to the holder. The rate of
discount and the corresponding issue price are
determined at each auction.
32. Certificate of Deposits
• Certificates of Deposit (CDs) is a negotiable money
market instrument and issued in dematerialised form or
as a Usance Promissory Note, for funds deposited at a
bank or other eligible financial institution for a specified
time period.
• Guidelines for issue of CDs are presently governed by
various directives issued by the Reserve Bank of India, as
amended from time to time.
33. Certificate of Deposits
CDs can be issued by
i. scheduled commercial banks excluding Regional Rural
Banks (RRBs) and Local Area Banks (LABs); and
ii. select all-India Financial Institutions that have been
permitted by RBI to raise short-term resources within the
umbrella limit fixed by RBI.
Banks have the freedom to issue CDs depending on their
requirements. An FI may issue CDs within the overall
umbrella limit fixed by RBI, i.e., issue of CD together with
other instruments viz., term money, term deposits, commercial
papers and intercorporate deposits should not exceed 100 per
cent of its net owned funds, as per the latest audited balance
sheet.
34. Commercial Paper
• CP is a note in evidence of the debt obligation of the issuer.
On issuing commercial paper the debt obligation is
transformed into an instrument.
• CP is thus an unsecured promissory note privately placed
with investors at a discount rate to face value determined by
market forces.
• CP is freely negotiable by endorsement and delivery.
35. Commercial Paper
A company shall be eligible to issue CP provided –
i. the tangible net worth of the company, as per the latest
audited balance sheet, is not less than Rs. 4 crore;
ii. the working capital (fund-based) limit of the company from
the banking system is not less than Rs.4 crore and
iii. the borrowal account of the company is classified as a
Standard Asset by the financing bank/s. The minimum
maturity period of CP is 7 days. The minimum credit
rating shall be P-2 of CRISIL or such equivalent rating by
other agencies.
36. Merits of Commercial Paper
• Technically, it provides more
funds compared to other
sources. The cost of
commercial paper to the
issuing firm is lower than the
cost of commercial
bank loans.
• It is in freely
transferable nature, therefore
it has high liquidity also a
wide range of maturity
provide more flexibility.
37. Merits of Commercial Paper
• A commercial paper is highly secure and does not contain
any restrictive condition.
• Companies can save their extra funds on commercial paper
and also earn some good return on the same.
• Commercial papers produce a continuing source of funds.
This is because their maturity can be tailored to suit the
needs of issuing firm. Again, commercial paper that matures
can be repaid by selling the new commercial paper.
38. Limitations of Commercial Paper
• Only financially secure and highly rated organizations can
raise money through commercial papers. New and
moderately rated organizations are not in a position to raise
funds by this method.
• The amount of money that we can raise through commercial
paper is limited to the deductible liquidity available with the
suppliers of funds at a particular time.
• Commercial paper is an odd method of financing. As such if
a firm is not in a position to redeem its paper due to financial
difficulties, extending the duration of commercial paper is
not possible.
39. Capital Market Instruments
• The capital market generally consists of the following
long term period i.e., more than one year period,
• financial instruments; In the equity segment Equity
shares, preference shares, convertible preference shares,
non-convertible preference shares etc and
• In the debt segment debentures, zero coupon bonds,
deep discount bonds etc.
40. • The capital market is the market for securities
where companies and the government can raise
long term fund.
• It is a place where buyers and sellers of securities
can enter into transactions to purchase and sell
shares, bonds and debentures.
45. PREFERENCE SHARES
Preference shares are known as preferred stock.
Preference share capital has two priorities i.e., in the
repayment of capital and payment of dividend.
Preferred stocks usually carry no voting rigths.
47. MERITS OF PREFERENCE SHARE CAPITAL
From Company’s point of view
Hybrid security
Absence of voting rights
No dilution of control
Fixed return
48. LIMITATIONS OF PREFERENCE SHARES
From Investor ’s point of view
Not secured.
Not an attractive investment.
No right to participate in the management.
49.
50.
51.
52.
53. DEBENTURES
In corporate finance, a debenture is a medium to long term
debt instrument used by large companies to borrow
money, at a fixed rate of interest.
A debenture is a unit of loan amount
When a corporation is intends to raise the loan amount
from the public it issues debentures.
The debenture holder gets interest which is fixed at the
time of issue.
55. MERITS OF DEBENTURES
No loss of managerial control
A Flexible source of finance
Reduces burden of tax of the company
56. LIMITATION OF DEBENTURES
• Fixed rate on interest
• Companies may have to mortgage their assets
• Not an attractive investment from company’s point of
view.
57.
58.
59.
60.
61.
62.
63.
64.
65.
66.
67.
68.
69. BONDS
• Bonds are issued by public authorities, credit
institutions, companies and super national institutions
in the primary market.
• A bond is a negotiable certificate which entitles the
holder of repayment of the principal sum plus interest.
• The most common process of issuing bonds is through
underwriting.
71. Bond Debenture
A bond is a financial instrument
showing the indebtedness of the
issuing body towards its holders.
A debt instrument used to raise
long term finance is known as
Debentures.
Bonds are generally secured by
collateral.
Can be Secured or Unsecured.
Low Interest Rates High Interest Rates.
Issued by Govt Agencies, Financial
institution, Corporation etc.
Issued by Public Companies
Accrued Periodical payments
72. • .
DIFFERENCE BETWEEN
EQUITY SECURITY DEBT SECURITY
Owner of the company. Creditor of the company.
Get Dividend only when company
earns sufficient profits.
Provides steady income to the
investors.
Have voting rights. No voting rights.
Not secured. Secured in nature.
Share capital of the company. Borrowed capital of the company.
73. Hybrid Instruments
• Hybrid instruments have both the features of
equity and debenture. This kind of instruments
is called as hybrid instruments. Examples are
convertible debentures, warrants etc.
74. • A hybrid financial insturment is an investment that blends
chearacteristics of both equity and debt markets (stocks and
bonds).
• The most common form of a hybrid instrument is the
convertible bond, warrants.
• This type of security is an issuance of debt that can be
converted to a company's common stock at any given time. So,
it is kind of like a call option.
Hybrid Instruments
75. • Obviously, the major advantage of this type of security is that
if the corporations stock price goes down, the option will not
be exercised and you will still receive interest payments on
your bonds.
• However, if the stock price goes up, you can convert the
bonds to stock at a given strike price.
• If the price of the stock is above the strike price, the
convertible is considered in “in the money”.
Hybrid Instruments
76. • The major advantage here is security.
• There is opportunity to profit greatly on increases in stock
prices, but at worse case you will still hold the debt
security.
• The only way you can realize "real" losses is if the
corporation defaults on its debt.
Hybrid Instruments
77. • One disadvantage of a convertible is a low yield. Convertibles
often yield a lower interest rate than the corporations no
convertible bonds due.
• One important thing to point out when dealing with hybrid
securities is they are very difficult to accurately value, and this
misreresentation is often reflected in its market value.
• This leaves alot of opportunity for an arbitrage situation, where
a securtiy can be purchased then immediatly sold for a profit
simultaniously.
Hybrid Instruments
78. • In India money market is regulated by Reserve bank of India
(www.rbi.org.in) and Securities Exchange Board of India
(SEBI) [www.sebi.gov.in ] regulates capital market. Capital
market consists of primary market and secondary market. All
Initial Public Offerings comes under the primary market and
all secondary market transactions deals in secondary market.
79. Secondary market refers to a market where securities are
traded after being initially offered to the public in the primary
market and/or listed on the Stock Exchange.
Secondary market comprises of equity markets and the debt
markets. In the secondary market transactions BSE and NSE
plays a great role in exchange of capital market
instruments.(visit www.bseindia.com & www.nseindia.com ).
81. FINANCIAL MARKETS
Any marketplace where buyers and sellers participate in the trade of
financial securities, commodities, and other fungible items of
value at low transaction costs and at prices that reflect supply and
demand.
Securities include stocks and bonds, and commodities include
precious metals or agricultural goods.
There are both general markets (where many commodities are traded)
and specialized markets (where only one commodity is traded).
83. As per RBI “ A market for short terms financial assets that
are close substitute for money, facilitates the exchange of
money in primary and secondary market”.
A mechanism that deals with the lending and borrowing
of short term funds.
A segment of the financial market in which financial
instruments with high liquidity and very short maturities
are traded.
MONEY MARKET
84. Money Market consists of a number of sub-markets which
collectively constitute the money market. They are:
Call Money:
lending and borrowing transactions are carried out for one day that
may or may not be renewed the next day.
Demand comes from commercial banks that need to meet
requirements of CRR and SLR,whereas supply comes from
commercial banks with excess funds, and FIs like IDBI, etc.
COMPOSITION OF MONEY MARKET
85. The Treasury Bill Market:
It deals in Treasury Bills of short term duration: 14 days,
182 days ,91 days, and 364 days.
They are issued by Government and largely held by RBI.
The treasury bills facilitate the financing of Central
Government temporary deficits.
The rate of interest for treasury bills is determined by the
market, depending on the demand and supply of funds in
the money market.
86. The Commercial Bill Market:
Deals in bills of exchange, a seller draws a bill of
exchange on the buyer to make payment within a
certain period of time.
The bills can be domestic bills or foreign bills of
exchange.
The commercial bills are purchased and
discounted by commercial banks, and
are rediscounted by FIs like EXIM Bank, SIDBI, IDBI,
etc.
87. The Commercial Paper Market:
The scheme of Commercial Paper (CP) was introduced in 1990
for short term financing issue . They can be issued in multiples of
Rs. 5 lakhs and in multiples thereof
As per RBI guidelines, CPs can be issued on the following
conditions:
a. The minimum tangible net worth of the company to be at least Rs. 4
crores.
b. The working capital limit should have been sanctioned by a bank or
financial institution.
89. ORGANISED MONEY STRUCTURE
PARTICIPANTS:
Reserve bank of India.
DFHI (discount and finance house of India)
Commercial banks:-
Public sector banks
SBI with 7 subsidiaries
Cooperative banks
20 nationalized banks
Private banks
Indian Banks
Foreign banks
Development bank
IDBI, IFCI, ICICI, NABARD, LIC, GIC, UTI etc.
91. Private firms that receive deposits and give loans and thereby
operate as banks
As activities are not regulated properly ,they are
unorganized segment
Broadly classified into 4 groups- GUJRATI SHROFFS, MULTANI
SHROFFS, CHETTIARS AND MARWARI KAYAS
INDEGENEOUS BANKS
92. MONEY LENDERS
Broadly classified into 3 categories:
PROFESSIONAL MONEYLENDERS
ITINERANT MONEYLENDERS
NON PROFESSIONAL MONEYLENDERS
93. FINANCE COMPANIES- gives loans to the retailers,
artisians and other self-employed persons
CHIT FUNDS- are saving institutions
NIDHIS- operate in unregulated credit market and
provide kind of mutual benefit funds
UNREGULATED INTERMEDIARIES
94. Absence of integration
Shortage of funds
Lower rate of return
Larger amount of transaction fee
DISADVANTAGES OF MONEY MARKET
95. The market where investment instruments like bonds,
equities and mortgages are traded is known as the capital
market.
The primal role of this market is to make investment from
investors who have surplus funds to the ones who are running
a deficit.
CAPITAL MARKET
96. The capital market offers both long term and overnight funds.
The different types of financial instruments that are traded in the
capital markets are:
equity instruments
credit market instruments (loans)
insurance instruments
foreign exchange instruments
hybrid instruments and
derivative instruments
CAPITAL MARKET
97. • Capital market is divided into 2 constituents :
– The financial institutions
provide long-term and medium term loan
facilities.
– The securities market
»Gilt-edged market
»The corporate securities market
STRUCTURE OF THE CAPITAL MARKET
98. Gilt-edged Market
Market in government securities.
Risk-free market.
Government securities market consist of
The new issue market
The secondary market
RBI plays a dominant role
The investors are predominantly institutions which are
required statutorily to invest in g-sec.
99. G-sec are the most liquid debt instruments.
Transaction in Government securities market are very
large.
100. CORPORATE SECURITIES MARKET
It is a market where securities issued by firms can be bought
and sold freely.
It consist of – the new issues market
- the stock exchange
101. It Is Related With issue of new securities.
It Has No Particular Place.
The public limited companies often raise funds through primary
market for setting up or expanding their business.
Following are the methods of raising capital in the primary market:
i) Prospectus
ii) Offer For Sale
iii) Private Placement
iv) Right Issue
THE NEW ISSUE MARKET
102. The stock exchange market is a highly organized market
for the purchase and sale of second-hand quoted or listed
securities.
‘quoting’ or ‘listing’ of a particular security implies
incorporating the security in the register of the stock exchange
so that it can be bought and sold there.
THE STOCK EXCHANGE
103. ROLE OF CAPITAL MARKET IN INDIA’S INDUSTRIAL
GROWTH
Financing Five Year Plans
Mobilization of savings and acceleration of capital
formation.
Promotion of industrial growth.
Raising long-term capital.
Ready and continuous market.
Proper channelization of funds.
Provision of a variety of services.
104. Establishment of development banks and industrial
financing institutions.
Legislative measures.
Growth of underwriting business.
Growing public confidence.
Increasing awareness of investment opportunities.
Setting up of SEBI.
Mutual funds.
Credit rating agencies.
FACTORS CONTRIBUTING TO THE GROWTH OF CAPITAL
MARKET IN INDIA
105. PROBLEMS OF THE INDIAN CAPITAL MARKET : THE PRE -
REFORM PHASE
EQUITY MARKET
as of 1992, BSE was a monopoly, so it had high cost of
intermediation.
“open outcry” , brokers used to charge the investors a much
higher price.
No price-time priority.
Manipulative practices prevailed.
Retail investors were dependent on sub-brokers.
106. Inefficiency of the exchange for the below largest 100
stocks.
Future-style settlement
Order execution was unreliable and costly.
Share certificates were printed on paper.
107. DEBT MARKET
in 1992, debt trading took place without an exchange.
Credit risk narrowed the market.
Enforcement of Cartels.
Trading took place by telephone in Mumbai.
Trade prices were not centrally reported.
RBI tracks ownership of G-sec in a database called
SGL(subsidiary general ledger). It was maintained manually.
108. GOVERNMENT SECURITIES MARKET
The auction system for the sale of government of india
medium and long-term securities was introduced from june
3, 1992.
the government of india set up the Securities trading corporation
of india.
Scheme of 14-day intermediate treasury bills was introduced.
A system of primary dealers was established in 1995.
STRENGTHENING THE CAPITAL MARKET: THE POST-
REFORM PHASE
109. Market orientation to issues of government securities paved the
way for the RBI to activate the open market operation as a tool of
market intervention.
Improvement were brought in transparency of operations
and data dissemination.
A practise of pre-announcing a calendar of treasury bills was
introduced.
Foreign institutional investors were allowed to set up 100per cent
debt funds to invest in government securities.
Retail trading in government securities commenced in 2003.
110. SEBI set up in 1988 was given statutory recognition in 1992 on
recommendations of the Narasimham Committee.
The Aims of SEBI are :
regulating the business in stock market and other security
market.
Registering and regulating the working of stock brokers.
Registering and regulating the working of investment
schemes.
SECURITIES AND EXCHANGE BOARD OF INDIA (SEBI)
111. Promoting and regulating the self-regulatory
organizations.
Prohibiting fraudulent and unfair trade practices.
Prohibiting insider trading.
Regulating substantial acquisition of shares and takeover
of companies.
112. NSE is a securities exchange set up in 1992.
It is a limited liability company.
The physical floor was replaced by
anonymous, computerized order-matching with strict price-
time priority.
Satellite communication removed the limitation of physical
place.
Transparency.
NATIONAL STOCK EXCHANGE OF INDIA
113. Financial Institutions
A financial institution (FI) is a company engaged in the business of dealing
with financial and monetary transactions such as deposits, loans,
investments, and currency exchange.
The major categories of financial institutions include central banks, retail
and commercial banks, internet banks, credit unions, savings and loans
associations, investment banks, investment companies, brokerage firms,
insurance companies, and mortgage companies
114. Types of Financial Institutions
Depository institution:-
Commercial bank
Credit union
Saving and loan association
Mutual saving
Non-depository institution:-
(They are not a bank in real sense. They make a contractual arrangement and invest in securities to
satisfy the need and preferences of the investor)
Insurance companies
Pension and provident fund
Finance companies
Mutual funds
115. Housing and Urban Development Corporation Ltd. (HUDCO)
National Bank for Agriculture and Rural Development (NABARD)
National Housing Bank (NHB) as the Common Nodal Agency for both Schedule
Commercial Banks (SCBs) and Housing Finance Companies (HFCs)
Small industrial Development Bank of India (SIDBI) Tourism Finance Corporation of India Ltd. (TFCI)
The Industrial Investment Bank of India (IIBI)
IFCI, Industrial Finance Corporation of India
Industrial Development Bank of India (IDBI)
116. National Small
Industries
Corporation
(NSIC) Bank
State Finance Corp
orations (SFCs)
SIDC states industrial
development corporation
State Industrial
Investment
Corporation
(SIIC)
State Land
Development
Bank (India)
Primary Land
Development
Bank
118. As depicted above, RBI classifies NBFCs into ten categories namely Asset Finance Companies(AFCs), Loan Companies(LCs), Investment
Companies (ICs), Infrastructure Finance Companies(IFCs), Core Investment Companies(CICs), Infrastructure Debt Funds (IDF-NBFCs), NBFC-
Microfinance Institutions (NBFC-MFIs), Factoring companies(FCs), Mortgage Guarantee Companies (MGCs) and Residuary Non- Banking
Companies(RNBCs).
Ministry Of Corporate Affairs
119. Commercial bank
The primary functions of a commercial bank are accepting deposits and also lending
funds. Deposits are savings, current, or time deposits. Also, a commercial bank lends
funds to its customers in the form of loans and advances, cash credit, overdraft and
discounting of bills, etc.
120.
121.
122.
123. Functions of Commercial bank
Commercial banks provide retail banking services to household and business
customers
They are licensed deposit-takers – providing a range of savings accounts
They are licensed to lend money (and thereby “create” money e.g. in the form of bank
loans, overdrafts and mortgages
Commercial banks are profit-seeking
A commercial bank’s business model relies on receiving a higher interest rate on the
loans (or other assets) than the rate it pays out on its deposits (or other liabilities)
This “spread” on their assets and liabilities is used to pay the operating expenses of a
bank and also to make a profit.
124.
125.
126. Merchant Banks
A merchant banker usually refers to a firm or organization involved in all
aspects of issue management. Their services include providing consultancy
or advisory services to corporates for issue management, making
arrangements for buying, selling or subscribing to shares in an issue or any
other consultancy or services such as underwriting, analysis and advice
related to mergers and acquisitions, arranging offshore funding or venture
capital, credit syndication and portfolio management.
128. Leading merchant bankers in India
Public sector: SBI Capital Markets, Punjab National bank, IFCI Financial Services
Private sector: ICICI Securities, Axis Bank, Bajaj Capital, Tata Capital Markets, Yes
Bank, Kotak Mahindra Capital Company, Reliance Securities
Foreign merchant bankers: Goldman Sachs (India) Securities, Morgan Stanley India,
Barclays Securities (India), Bank of America, Citigroup Global Markets India
