Project Finance in Management studies.pptx

Project finance in management studies

1. Project Finance

2. Sources of Finance Finance is one of the essential requirements of any enterprise. It is essential to know the possible alternative sources from which finance can be availed of as entrepreneurs are shortage or lack of their own funds. Government of India has also setup a host of institutions to meet the financial requirements of small entrepreneurs.

3. Commercial Banks The Scheduled Commercial Banks (SCBs) in the country comprise State Bank and its associated banks(6) Nationalized Banks (12) Private sector banks (21) Regional Rural banks [RRBs] (43) Foreign Banks with branches (40)

4. Initially, SBI, in consultation with Reserve bank of India(RBI) , in March 1956 came up with a pilot scheme for the provision of credit to small scale industries (SSIs). Initially the scheme was confined 9 branches and later to all branches of SBI. Commercial Banks started taking initiation in financing SSIs in a greater way only after bank nationalization in July 1969 . A notable feature of SSI has been the introduction of “Lead Bank Scheme” , where each district has been allotted to one scheduled commercial bank for intensive development of banking facilities for agriculture, SSI, MSI. The introduction of “Credit Guarantee Scheme”, in 1960 , was a big fill-up in the field of commercial bank financing to SSI, which was introduced to 22 districts.

5. Other Financial Institutions

6. To provide sufficient finance to small scale entrepreneurs, the government has set up number of financial institutions: ( Central and State level) These institutions provide a variety of financial assistance required by the entrepreneurs in the form of Term Finance (short term, variable interest rate) Refinance (switching loans with low interest) Working capital finance (Capital for Raw material to Product sale) Direct subscription to shares and guarantees Equipment leasing Asset credit (loans based on credit availability) Venture capital (Investment from Big companies after POC) Basic purpose is to “boost development of small scale enterprises in country”

7. Industrial Development Bank of India(IDBI) V.V Bhatt rightly pointed out that the country needed a “Central development banking institution for providing dynamic leadership in the task of promoting a widely diffused and diversified and yet viable process of industrialization”. IDBI was established on July 1, 1964 under the act of parliament as principal financial institution in the country. Initially set up as wholly owned subsidiary of RBI and then in Feb. 1967, IDBI was made an autonomous institution and its ownership passes on to Government of India. The IDBI provides assistance to small scale industries (SSIs) through its scheme of refinance, and bills rediscounting scheme.

8. IDBI has shown particular interest in small scale industries – Small Industries Development Fund (SIDF) in May 1986 to facilitate the development and extension of small scale industries . In 1988, IDBI also launched the National Equity Fund Scheme (NEFS) for providing support in the nature of equity for small scale industries engaged in manufacturing cost not exceeding Rs.5 Lakhs. The IDBI has also setup a voluntarily Executive Corporation Cell (VECC) to utilize the services of experienced professionals for counselling small units and consultancy support in specific areas. During 1987-88, IDBI has sanctioned assistance worth Rs. 1511 crores to SSI out of the total sanction of Rs.4580 crores (one – third).

9. Refinance: Refinance is the process of changing lenders of loans. https:// www.youtube.com/watch?v=ogBihFpLY2c Bill rediscounting scheme : Under this type of lending,  Bank takes the bill drawn by borrower on his (borrower's) customer and pay him immediately deducting some amount as discount/commission . The Bank then presents the Bill to the borrower's customer on the due date of the Bill and collects the total amount . https:// www.youtube.com/watch?v=QbMDlJHS1Yw https:// www.youtube.com/watch?v=J8VvdxqRh2w https:// www.youtube.com/watch?v=G_eIPhO40Do

10. LIFE INSURANCE CORPORATION OF INDIA(LIC) The Life Insurance corporation of India (LIC) was established under the LIC act in 1956 wholly owned by government of India. LIC Offers a variety of insurance policies to extend social security to various segments of the society. As per its investment policy, its 75% and above of the accretion to its controlled Fund in central and state governments’ securities including government guaranteed marketable securities. It also provides loans for various purposes like housing, water supply, rural electrification etc . to benefit individuals and groups. During 1994-1995, LIC sanctioned assistance to corporate sector (other financial institutions) Rs. 1790 crore and In 1995, LIC sanctions stood at Rs.11563 crore. The private sector claimed at higher share (57.8%), followed by public sector (34.1%) and cooperative sector (8%) .

11. UNITED TRUST OF INDIA (UTI) UTI established under an parliamentary act in 1964, mobilizes saving of small investors through sale of units and channelizes them into corporate investments. UTI has introduced variety of schemes to meet the need of diverse sections of investors . UTI also provide assistance to corporate sector by way of term loans and direct subscription to shares. During 1994-95, UTI launched nine schemes/plans aimed mainly at common investors, which includes open ended schemes like Grihalakshmi unit plan, Retirement benefit plan, Primary Equity Fund, Unit Scheme 1995.

12. Overall assistance sanctioned during 1994-95, to corporate sector stood at Rs.7677 crore . The amount disbursed was Rs.4791 crore and about three –fourth of sanctions were by direct subscription to shares. UTI was established with an initial capital of Rs.5 Crore contributed by LIC, RBI, SBI and its subsidiaries and scheduled banks. More than half of sanctions were claimed by new projects, followed by expansion(12.6%) and modernisation (1.7%). Other purposes include working capital loans for 34.9% of total sanctions.

13. Institutional Finance Corporation of India(IFCI) Government of India ( GoI ) has setup IFCI under IFCI act in July 1948 and since July 1,1993 it has been brought under companies act 1956. IFCI extends financial assistance to industrial sector through rupee and foreign currency loans , direct subscription to shares and guarantees. IFCI also offers financial services through its facilities of equipment procurement , equipment finance, equipment leasing , and also to finance to lease and purchase companies. It also provides merchant banking with its Head office in Delhi. Merchant Banking => Skill oriented professional service to their clients

14. The Financial resources of IFCI are constituted in three components: Share capital Bonds and Debentures Fund Raising tools Other Borrowings Bonds : Issued by Govt., Agencies of government (secured, Less risk, low interest) Debentures : Issued by public companies (unsecured, High risk, High interest)

15. Shareholders: Industrial Development Bank of India (IDBI) Scheduled Banks (Registered/maintained by RBI) – SBI, KVB) Insurance companies Cooperative banks IFCI started its lending operations in 1948 and has grown over the years from an initial of 5 crore in 1948 to 352 crore in 1995. A ssistance sanctioned by IFCI rose by 52.7% i.e 52719 crores.

16. Some new schemes: Interest subsidy scheme for women entrepreneurs Consultancy fee subsidy scheme for providing marketing assistance to small scale industries Encouraging the modernisation of tiny, small scale ancillary units Control of pollution in small and medium scale industries Some of the Flaws: There are great delays in sanctioning loans Failed to exercise necessary control over defaulting borrowers There are few discriminatory policy to the disadvantage of small and medium scale units

17. Industrial Credit and Investment corporation of India ltd. (ICICI) ICICI was set up in January 1995 under the Indian companies act to develop small and medium scale industries in private sector. Capital funding from Indian banks Insurance companies Corporations of united states British East exchange bank General public in India

18. Performs the following: It provides assistance by way of rupee and foreign currency loans, direct subscriptions to shares and guarantees It offers various financial services such as leasing credit, asset credit, venture capital and installment sale It guarantees loans from other private investment sources ICICI has setup Merchant Banking Division ICICI Asset management company ltd (June 1993 – Mutual funds) ICICI investors services (Mar 1994) ICICI Banking Corporation (Jan 1994)

19. Assistance sanctioned by ICICI during 1994-95 increased by 77.4% to Rs.15,065 crore while disbursements up to 55.9% to Rs. 6879 crore . It assists private sector, joint sector, public sector, and cooperative sector. But private sector continued its largest share (90.1%), followed by public sector(4.6%), joint sector(4.1%) and cooperative sector (1.2%) Major beneficiary of ICICI’s assistance is the private sector comprising of small units.

20. Small Industries Development Bank of India(SIDBI) AS a subsidy of IDBI, to ensure larger flow of financial and non-financial assistance, GOI set up SIDBI in October 1989. SIDBI has taken over outstanding portfolio of IDBI relating to small sector of worth Rs.4000 crores. Functions of SIDBI: To initiate steps for technological and modernisation of existing units To expand channels for marketing of products in SSI. To promote employment oriented industries in semi urban areas to create more employment opportunities.

21. SIDBIs Financial assistance by (existing credit delivery system) State financial corporations State Industrial development corporations Commercial banks Regional Rural banks Schemes: Equipment finance scheme for providing direct finance to existing well run small scale units Refinance for resettlement of voluntarily retired workers of NTC (National textile corporation)

22. ROLE of SIDBI in promotion of DALIT Entrepreneurs

23. State Financial Corporations (SFCs) SFCs was set up in Punjab in 1953 and a total of 18 SFCs are existing in the country. In Tamilnadu, Madras Industrial Investment corporation functions as full fledged SFCs. Function: To provide long term finance to small scale and medium sized industrial units organised as proprietary, partnership, cooperative, public or private company Other function is to issue stocks, bonds, shares and grant loans and advance to industrial concerns repayable within 20 years.

24. SFCs also grant financial assistance to small road transport operations, hotels, hospitals, nursing homes, tourism related activities. Aggregate assistance sanctioned by SFC to small scale sector comprising of SSIs and Small Road transport operators (SRTO’s) amounted to Rs. 1992 crores. In march 1995, the total sanctions aggregated an amount of Rs.15499 crore (80.1%) of total sanctions, while disbursements amounted Rs.12515 crore (81.6%) of total disbursements