External Commercial borrowing (ECB) refers to commercial loans availed by companies from non-resident lenders in the form of bank loans, buyers credit, suppliers credit, securitized instruments (e.g. floating rate notes and fixed rate bonds). A company is allowed to raise ECB from internationally recognized source such as banks, export credit agencies, suppliers of equipment, foreign collaborators, foreign equity-holders, international capital markets etc. However, offers from unrecognized sources are not entertained. External Commercial Borrowings (ECBs) include bank loans, suppliers and buyers credits, fixed and floating rate bonds (without convertibility) and borrowings from private sector windows of multilateral Financial Institutions such as International Finance Corporation. In India, External Commercial Borrowings are being permitted by the Government for providing an additional source of funds to Indian corporate and PSUs for financing expansion of existing capacity and as well as for fresh investment, to augment the resources available domestically. ECBs can be used Continue reading
Business Finance
Business Finance is that business activity which is concerned with the acquisition and conservation of capital funds in meeting financial needs and overall objectives of business enterprises.
Cash Collection and Payment Systems
Cash Collection Practices Cash management is intimately connected with realization from debtors. Prompt collection from debtors is preferred for that involves less money being locked-up in accounts receivables, less bad debts, etc. How can collections be prompted? We can give cash discount to prompt collections. Besides a system of decentralized collection is suggested for prompt collections. Concentration Banking is a technique of decentralized or prompt collection. Concentration banking system works this way: (i) there is decentralized billing of customers, so that immediate dispatch of goods, invoices are made and dispatched, (ii) customers are directed to send the remittances to corresponding regional offices, (iii) regional offices on receipt of remittances send them to banks for collection, (iv) After collection is effected, after retaining a minimum sum, the regional office sends the balance on account to the head-office bank account. As all such cash balance remittances get concentrated in the head-office bank Continue reading
Narasimham Committee on Banking Sector Reforms (1998)
In spite of the optimistic views about the growth of banking industry in terms of branch expansion, deposit mobilization etc, several distortions such as increasing NPAs and obsolete technology crept into the system, mainly due to the global changes occurring in the world economy. In this context, the finance ministry of Government of India appointed Mr. M. Narasimham as chairman of one more committee, this time it was called as the committee on banking sector reforms. The committee was asked to “review the progress of banking sector reforms to the date and chart a programme on financial sector reforms necessary to strengthen India’s financial system and make it internationally competitive”. The Narasimham committee on banking sector reforms submitted this report to the government in April 1998. This report covers the entire issues relating to capital adequacy, bank mergers, the condition of global sized banks, recasting of banks boards etc. The Continue reading
Promotional Role of Development Banks in India
The pace of development cannot be accelerated by providing financial assistance alone. There are factors which inhibit industrialization of an underdeveloped country. It is essential to make a correct diagnosis of those factors and plan things accordingly. The growth potential of different areas, the availability of natural resources, demand conditions, infrastructure facilities, etc. should be taken into account before deciding the pattern of industrialization of various places. The task of identification of growth potentialities and preparation of feasibility studies is not an easy task. It requires huge finances and technical expertise which is beyond the competence of entrepreneurs of under-developed countries. It is in this area where development banks can play crucial role. In addition to providing the traditional role of providing financial assistance, development banks in India are undertaking promotional role also. Some of the areas where these banks are participating are: (1) Surveys of Backward Areas Under the Continue reading
Modes of debt recovery other than normal debt recovery procedure
(1) Where a certificate has been issued to the Recovery Officer under Sub-section of section 19, the Recovery Officer may, without prejudice to the modes of recovery specified in section 25, recover the amount of debt by any one or more of the modes provided under this section. (2) If any amount is due from any person to the defendant, the Recovery Officer may require such person to deduct from the said amount, the amount of debt due from the defendant under this Act and such person shall comply with any such requisition and shall pay the sum so deducted to the credit of the Recovery Officer: Provided that nothing in this sub-section shall apply to any part of the amount exempt from attachment in execution of a decree of a civil court under section 60 of the Code of Civil Procedure, 1908 (5 of 1908). (3) (I) The Recovery Continue reading
Receivable Management – Meaning, Significance and Purpose
Introduction to Receivable Management Receivables, also termed as trade credit or debtors are component of current assets. When a firm sells its product in credit, account receivables are created. Account receivable are the money receivable in some future date for the credit sale of goods and services at present. These days, most business transactions are in credit. Most companies, when they face competition, use credit sales as an important tool for sales promotion. As a sales promotion tool, credit sale enhances firm’s sales revenue and ultimately pushes up the profitability. But after the credit sale has been made, the actual collection of cash may be delayed for months. As these late payments stretch out over time, they may cause substantial drop in a company’s profit margin. Since the extension of credit involves both cost and benefits, the firm’s manager must be able to measure them to determine the ultimate effect of credits sales. In Continue reading